October 20, 2006: NO to steel
There has been a lot of hype in regards to the steel industry of late. Even an ETF is available for tracking the makers of this oft imitated but never duplicated metals sector. In my opinion, the stock of steel producers is as anything but strong and resistent to corrosion.
According to the Media Service Center Institute (MSCI), steel service inventories totaled 3.8 months of supply as of the end of September vrs. 3.1 months as of the end of August and 2.8 months in September of 05. And according to Credit Suisse analysts, total inventories are continuiung to increase. INVENTORIES ARE NOW AT THE HIGHEST ABSOLUTE LEVEL SINCE CREDIT SUISSE STARTED TRACKING THIS DATA IN 1987.
This, and shipment growth has stalled. Average daily shipments of steel declined 0.5% in September. Even with some improvement anticipated in October, it will not be enough to bring pricing power to this industry group.
The only bright spot is that bar inventories buck the trend and remain slightly down year-over-year on an absolute basis.
Therefore: If you bought steel on the way up, congratulations. Inventory data now indicates that steel as an industry should be underweighted in your portfolio.
Adding to positions on weakness will not make sense until inventories drop, prices stabilize and the recession that is upcoming is determined to be a soft landing (likely, but not assured).
According to the Media Service Center Institute (MSCI), steel service inventories totaled 3.8 months of supply as of the end of September vrs. 3.1 months as of the end of August and 2.8 months in September of 05. And according to Credit Suisse analysts, total inventories are continuiung to increase. INVENTORIES ARE NOW AT THE HIGHEST ABSOLUTE LEVEL SINCE CREDIT SUISSE STARTED TRACKING THIS DATA IN 1987.
This, and shipment growth has stalled. Average daily shipments of steel declined 0.5% in September. Even with some improvement anticipated in October, it will not be enough to bring pricing power to this industry group.
The only bright spot is that bar inventories buck the trend and remain slightly down year-over-year on an absolute basis.
Therefore: If you bought steel on the way up, congratulations. Inventory data now indicates that steel as an industry should be underweighted in your portfolio.
Adding to positions on weakness will not make sense until inventories drop, prices stabilize and the recession that is upcoming is determined to be a soft landing (likely, but not assured).
posted by T @ 10/19/2006 11:18:00 PM
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