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Steel stock investors beware: Price-crushing 'Steelmaggedon' is coming, says BofA
Eastern Railroad Discussion > OT: Steel business may be changing, fast
Date: 03/19/19 13:17
OT: Steel business may be changing, fast
Author: Lackawanna484
CNBC has a report about a Merrill Lynch analyst's belief the US steel making business is about to go through more wrenching changes. The import restrictions have created a rebirth and reopening of older steel plants, but the higher prices of finished steel are creating a lot more competition. Steel mills benefit from rail hauled iron ore, rail hauled coal, rail hauled limestone, and rail hauled output. Much of which is cooked in an old fashioned blast furnace.
The gist of the report is the blast furnace model is doomed, and will be gone in a few years. The higher price of US made steel has made it cost effective to build / expand the use of electric arc furnaces, which typically recycle scrap metal, hauled by railroads, etc into new steel. But, the arc furnaces often use natural gas produced electricity to melt the scrap. Electric arc furnaces will eventually crowd out the older blast furnaces and their greater dependence on rail. In this viewpoint. There's also an environmental issue, and the recycling opportunity.
The argument rests on several supports. Among them: One is the 25% tariffs on imported steel remain in place. Two is that the current oversupply of mills, new and older, causes a crash in prices and a glut of steel. Three is the demand for steel remains at at least current levels.
Merrill coins the name Steelmagaddon to describe the deluge of supply.
https://www.cnbc.com/2019/03/19/steel-stock-investors-beware-price-crushing-steelmaggedon-is-coming.html
Date: 03/19/19 13:17
OT: Steel business may be changing, fast
Author: Lackawanna484
CNBC has a report about a Merrill Lynch analyst's belief the US steel making business is about to go through more wrenching changes. The import restrictions have created a rebirth and reopening of older steel plants, but the higher prices of finished steel are creating a lot more competition. Steel mills benefit from rail hauled iron ore, rail hauled coal, rail hauled limestone, and rail hauled output. Much of which is cooked in an old fashioned blast furnace.
The gist of the report is the blast furnace model is doomed, and will be gone in a few years. The higher price of US made steel has made it cost effective to build / expand the use of electric arc furnaces, which typically recycle scrap metal, hauled by railroads, etc into new steel. But, the arc furnaces often use natural gas produced electricity to melt the scrap. Electric arc furnaces will eventually crowd out the older blast furnaces and their greater dependence on rail. In this viewpoint. There's also an environmental issue, and the recycling opportunity.
The argument rests on several supports. Among them: One is the 25% tariffs on imported steel remain in place. Two is that the current oversupply of mills, new and older, causes a crash in prices and a glut of steel. Three is the demand for steel remains at at least current levels.
Merrill coins the name Steelmagaddon to describe the deluge of supply.
https://www.cnbc.com/2019/03/19/steel-stock-investors-beware-price-crushing-steelmaggedon-is-coming.html
Steel stock investors beware: Price-crushing 'Steelmaggedon' is coming, says BofA
• U.S. steel capacity is set to increase by 20 percent around 2022, pushing down prices for steel commodities, Bank of America Merrill Lynch warns.
• The impact will be so punishing, the investment bank is dubbing the next several years of upheaval "Steelmageddon."
• The path for steel stock investors will be "treacherous" throughout the period.
Tom DiChristopher | @tdichristopher
Published 9:18 AM ET Tue, 19 March 2019 Updated 4:05 PM ET Tue, 19 March 2019
Bank of America Merrill Lynch is warning of a price-crushing steel glut so punishing that it warrants the end-of-days moniker "Steelmageddon." ... The glut will sweep through the industry over the next few years as new project start-ups create an oversupply of steel commodities. The wave of new additions is expected to hit in 2022, with U.S. steel capacity growing by 20 percent, swamping the market and putting pressure on steelmakers' profit margins.
In the wake of Steelmaggedon, Merrill sees the U.S. industry emerging with a smaller footprint, as new electric arc furnaces replace older blast furnaces. The bank believes Nucor and Steel Dynamics could emerge with better market share and healthier profit margins, but warns that Steelmaggedon should deter most long-term investors from buying into the space.
"This purge of inefficient capacity can ultimately result in a leaner, more competitive, streamlined U.S. steel industry," Merrill Lynch analysts Timna Tanners and Wilfredo Ortiz wrote in a research note Thursday.
"After the dust clears from Steelmageddon™, an attractive steel industry could emerge. But we would warn investors the path for the next several years of upheaval can be treacherous." ... ( The investment bank is so confident the event will come to pass, it went ahead and trademarked the term "Steelmageddon." )
....
• U.S. steel capacity is set to increase by 20 percent around 2022, pushing down prices for steel commodities, Bank of America Merrill Lynch warns.
• The impact will be so punishing, the investment bank is dubbing the next several years of upheaval "Steelmageddon."
• The path for steel stock investors will be "treacherous" throughout the period.
Tom DiChristopher | @tdichristopher
Published 9:18 AM ET Tue, 19 March 2019 Updated 4:05 PM ET Tue, 19 March 2019
Bank of America Merrill Lynch is warning of a price-crushing steel glut so punishing that it warrants the end-of-days moniker "Steelmageddon." ... The glut will sweep through the industry over the next few years as new project start-ups create an oversupply of steel commodities. The wave of new additions is expected to hit in 2022, with U.S. steel capacity growing by 20 percent, swamping the market and putting pressure on steelmakers' profit margins.
In the wake of Steelmaggedon, Merrill sees the U.S. industry emerging with a smaller footprint, as new electric arc furnaces replace older blast furnaces. The bank believes Nucor and Steel Dynamics could emerge with better market share and healthier profit margins, but warns that Steelmaggedon should deter most long-term investors from buying into the space.
"This purge of inefficient capacity can ultimately result in a leaner, more competitive, streamlined U.S. steel industry," Merrill Lynch analysts Timna Tanners and Wilfredo Ortiz wrote in a research note Thursday.
"After the dust clears from Steelmageddon™, an attractive steel industry could emerge. But we would warn investors the path for the next several years of upheaval can be treacherous." ... ( The investment bank is so confident the event will come to pass, it went ahead and trademarked the term "Steelmageddon." )
....