The U.S. shale-gas revolution, which has revitalized chemicals companies and prompted talk of domestic energy self-sufficiency, is attracting a wave of investment that may revive profits in the steel industry.
Austrian steelmaker Voestalpine AG said Dec. 19 it may construct a 500 million-euro ($661 million) factory in the U.S. to benefit from cheap gas. Nucor Corp., the most valuable U.S. steelmaker, plans to start up a $750 million Louisiana project in mid-2013. They're among at least five U.S. plants under consideration or being built that would use gas instead of coal to purify iron ore, the main ingredient in steel.
“That technology has been around 30 years, but for 29 years gas prices in the U.S. were so high that the technology was not economical,” said Michelle Applebaum, managing partner at consulting firm Steel Market Intelligence in Chicago. “This is how steel will be built moving forward.”
Eoin Treacy's view An advantage in energy costs is unlikely
to provide enough of a boost to make the USA's steel industry competitive when
compared to the breadth of China's lower cost sector. However, it may act as
a deciding factor in speciality production where labour costs are less of a
As a speciality steel producer Worthington Industries has been a relative outperformer. The share has held a progression of higher major reaction lows since 2009 and found support in the region of the 200-day MA from early November. It has since rallied impressively to test its 2007 highs and while overbought in the short-term, a sustained move below $21 would be required to question medium-term scope for additional upside.
Japanese steel makers, in line with the wider domestic market, have benefitted from the Yen's recent weakness, JFE Holdings and Nippon Steel have both rallied back above their respective 200-day MAs and are challenging their downtrends. The benefit of the doubt can be given to the medium-term upside provided they continue to hold their short-term progressions of higher reaction lows.
Chinese steel makers are responding to renewed impetus in infrastructure development. BaoSteel retested its 2006 lows in September and has held a progression of higher reaction lows since. It pushed back above the 200-day MA earlier this month and a sustained move below HK$4.70 would be required to question medium-term scope for additional upside. Taiwan listed China Steel Corp has a similar pattern.