China to Flood Steel Market Hurting ArcelorMittal
Monthly shipments abroad rose to 8.7 percent of domestic output last month, the highest proportion since July 2010.
Chinese steel mills, set for a record production in 2012, are ramping up overseas sales to avoid a softer domestic market, where prices for the commodity have dropped to a two-year low.
ArcelorMittal of Luxembourg, which posted a 28 percent slump in second-quarter profit today, and peers in developed markets are closing plants amid slower economies and lower prices. In contrast, Chinese Premier Wen Jiabao is overseeing a $23 billion investment in new mills to stimulate automaking and housing to reignite growth that fell in the second quarter to the slowest in three years. The strategy already is sparking unfair-trade charges by Western rivals.
“Increased Chinese exports take sales directly away from American producers,” Alan Price of Wiley Rein LLP, which acts as the trade attorney for Nucor Corp., the largest U.S. steelmaker by market value, said in an e-mail response to questions. “It is highly likely that current Chinese exports across a range of products are being dumped.”
Eoin Treacy's view China has embarked on a policy of modernising its steel production which, once complete, will allow it to compete more effectively on the international stage. Closing inefficient production, forcing mergers and investing in new technology have all been part of this evolution. The result is that competition across the global sector is likely to intensify even further over coming years. In addition, the slowing global economy is likely to weigh on the sector until some catalyst emerges to change investor sentiment.
ArcelorMittal tested the €10 area in October and early June. Its unwind of the short-term oversold condition can probably best be described as half hearted and it will need to hold above €10 on the current pullback to begin to suggest a return to demand dominance. Posco has a similar pattern while US Steel is somewhat weaker.
JFE Holdings, Bao Steel, Cia Siderurgica Nacional, Nippon Steel, China Steel and Evraz are accelerating lower. A number of these shares have lost 50% of their value since April and are becoming increasingly overextended relative to the 200-day MA. However, clear upward dynamics will be required to check momentum beyond a brief pause.
Speciality steel maker, Allegheny Technology posted an impressive upside key reversal in late June but failed to follow through and has subsequently pulled back to test the June low. It needs to hold at this level if potential for a bounce is to remain credible.
Gerdau retested its 2008 low in August and has held a progression of higher reaction lows since. It is currently pulling back and will need to hold above BRL 15 if potential for continued higher to lateral ranging is to be given the benefit of the doubt.