Steelmakers File U.S. Trade Case Seeking Duties on Oil Pipes
Comment of the Day

October 17 2013

Commentary by Eoin Treacy

Steelmakers File U.S. Trade Case Seeking Duties on Oil Pipes

This article by Brian Wingfield for Bloomberg may be of interest to subscribers. Here is a section
A group of oil-pipe makers led by United States Steel Corp. (X) filed a U.S. trade complaint against competitors in nine nations, alleging goods from those countries were sold in the U.S. market below cost and, in some cases, benefited from government subsidies.

The U.S. coalition made the complaint with the International Trade Commission today in Washington. Countries named in the complaint are India, Korea, the Philippines, Saudi Arabia, Taiwan, Thailand, Turkey, Ukraine and Vietnam. U.S. Steel and Tenaris SA (TEN) rose in New York.

Producers including U.S. Steel won U.S. duties averaging 86 percent on Chinese pipes used in oil and gas wells, after complaining in a similar case brought in 2009 that they were being hurt by below-market prices for Chinese products. The latest case, if successful, would be a “landmark record win for the U.S. steel industry” because it would create a defense against imported oil-pipe products, said Michelle Applebaum, managing partner at consultant Steel Market Intelligence in Chicago.

Eoin Treacy's view On seeing Rio Tinto’s positive production results on Tuesday my curiosity was piqued as to how this might be affecting the wider iron-ore and steel sectors. Since they have been among the most unloved globally for the last few years, a change in the supply/demand dynamics for the sectors is likely to be noteworthy.

The basic resources and steel sectors have some of the more attractive valuations for their respective markets. David has highlighted on a number of occasions that powerful rallies by the resources sector, from depressed levels, is often a signal of a late in the cycle move, as laggards are favoured for catch-up plays. As a result there are two ways of interpreting such an eventuality. The momentum that such moves are capable of producing reflects a viable trading opportunity. However from a macro perspective, the return to outperformance of a cyclical sector such as resources suggests that we may be approaching the latter stages of the medium-term bull market cycle. In any case these sectors are worth monitoring.

In addition to Rio Tinto, two of the most notable performers in the iron-ore sector are Fortescue Metals and VALE. Fortescue Metals is one of the primary pure plays on iron-ore. The share found support in the region of the 2012 lows, near A$3, in July and has staged an impressive rebound to post new 12-months highs. While somewhat overbought in the short term, a clear downward dynamic would be required to check momentum. For the first time since 2010, VALE found support this week in the region of the 200-day MA. A sustained move below the trend mean would be required to check potential for additional upside.

The steel sector has suffered from a confluence of negative factors since 2009. Among these have been slowing global growth, massive oversupply and China’s attempts to curtail property speculation. The fact that the Eurozone is emerging from recession, the Japanese economy is growing at its fastest pace in decades and the USA is growing modestly suggests that the global growth is less of a headwind for the sector. China’s attempt to clamp down on overinvestment in the infrastructure sector has been a headwind. However, if they effectively rationalise inefficient elements of the sector and embark on affordable home building as planned the oversupply of Chinese steel should become less of a factor for international competitors. What does appear clear from the above article is that the US steel sector is attempting to combat competition regardless. (Also see Comment of the Day on August 14th).

Italy listed Tenaris, Austria listed Voestalpiine, US listed Nucor, Commercial Metals and Carpenter Technologies are testing the upper side of multi-year ranges.

Netherlands listed Arcelor Mittal, US listed United Steel and Allegheny Technologies have all pushed back above their respective 200-day MAs for the first time in a number of years suggesting demand is returning to dominance beyond the short term.

As a leader in the production of gas cylinders Worthington Industries is among the better performers in the steel sector. The share broke out of a decade long range at the end of last year and continues to hold a progression of higher reaction lows. (Also see Comment of the Day on December 31st).

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