Steel Could Get A Bid On Declining Chinese Stockpiles (MXI, SLX, X, BHP, RIO, VALE)

Tim Seymour:  China’s steel mills curbed their output over the summer, driving inventories of finished steel products well below historical averages and giving global steel prices a lift. 

In all, steel supplies in China are reportedly back at late 2010 levels — lower than they have been in nearly a year — after the country’s steel mills were idled through much of June and July.

With inventories of most classes of steel products now below 18-month averages, industrial demand for added supply has pushed spot prices up in the last few days.

This morning alone, steel is trading up $8 at $600 a ton — a 7-week high.

Unfortunately, this is not a global phenomenon. One of the reasons Chinese stockpiles were allowed to get so low was the prospect of power restrictions throughout the industry.

North American steel makers like U.S. Steel (NYSE:X) have been operating under no such constraints, and in fact U.S. steel stockpiles are now at their highest since 2009.

Might be a chance here to play the iron group, which is feeding increasingly low grades of ore to China as mills there try to contain their costs. The basket is BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO) and, as always, Vale (NYSE:VALE).

The Market Vectors Steel ETF (NYSE:SLX) is down about a quarter so far this year, while the S&P Global Materials Sector Index Fund Holdings ETF (NYSE:MXI) is down about 10%.

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

Leave a Reply

Your email address will not be published. Required fields are marked *