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Steel Industry Midyear Update: Key Investor Takeaways

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Part 14
Steel Industry Midyear Update: Key Investor Takeaways PART 14 OF 14

US Steel Companies Caught in Global Metals Meltdown

Global metals meltdown

In the previous parts of this series, we have analyzed the outlook for the steel industry. As we found, there are mixed signals for investors in steel companies. Meanwhile, steel companies seem to be caught in what can be described as the global metals meltdown. Copper is trading near its six-year low, while the all-in aluminum price has also tumbled.

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What is causing the metals meltdown?

The recent meltdown in steel companies like US Steel (X), ArcelorMittal (MT), and AK Steel (AKS) could be attributed to two factors:

  • The Greece fallout: There are several uncertainties around the prevailing situation in Greece. Commodities from oil to iron ore have crashed, as there seems to be no immediate solution to the Greek situation.
  • The Chinese stock market crash: Chinese shares have continued to trade weakly after a phenomenal run in the last year. The above chart shows the recent movement in China tracking the iShares China Large-Cap ETF (FXI). The contagion effect of falling Chinese markets is visible in the global stock markets. Commodity companies are generally at the forefront whenever the markets crash.

Is the crash overdone?

Steel companies should deliver better operating performance toward the end of 2015. Any positive development on the trade cases would be another boost to the industry’s fortunes. We might see an upward move in metal shares in the coming trading sessions, unless the current weak global macros turn into a full-blown economic crisis. However, volatility should be in play over the next few days.

The chances of the Greek situation, and China’s (MCHI) stock market crash, having a major impact on global economic growth look bleak as of now. However, investors should keep a close eye on how events unfold in the next few days.

You can also visit Market Realist’s steel page to learn more about the recent developments in this industry.

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