Steel Could Enter A Bull Market By Year's End

Michael Teague |

Steel was fast approaching bull market territory on Thursday as record-breaking production from China is proving to be insufficient to meet demand.

As the Chinese government attempts to curb excess spending that analysts fear could lead to a US-style housing bubble, the country’s production of steel rebar rose 14 percent to 113 million metric tons throughout the first 7 months of the year, a period that also saw stockpiles lower by 35 percent.

Despite warnings about a looming oversupply in a number of hard commodities markets such as iron ore, steel has largely benefitted from shrinking reserves. On the Shanghai futures exchange, rebar has advanced 10 percent since hitting a low in June, and the advance could continue on to 20 percent by the end of the year.

The news comes as demand for rebar could eventually be handicapped by government measures to cut back on lending, as well as put up stiffer barriers to getting approval for new home construction projects, both of which have resulted in increased new home prices throughout China, and significantly higher borrowing costs for builders.

All the same, there is less worry about demand for rebar than other metals, as the government is still placing a high priority on investing in infrastructure. Of the 14,000 miles of rail lines scheduled for construction by the end of 2015, for example, rebar will be an absolutely necessary element throughout much of it.

In any event, prices are set to climb as stockpiles continue to drop. Chinese rebar inventory dropped from 10.2 million tons last March to 6.6 million by Aug 30, and global steel prices could increase some 4 percent by 2014 as a result.

A number of steel stocks rose on Thursday's news, with gains for Synalloy Corp (SYNL) , Commercial Metals Co. (CMC) , and AK Steel Holding Corp (AKS) , among others.

[Image courtesy of Wikimedia Commons]

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
AKS AK Steel Holding Corporation 9.80 0.47 5.04 17,759,641
CMC Commercial Metals Company 22.51 0.10 0.45 1,334,260
SYNL Synalloy Corporation 10.55 0.30 2.93 31,704
PRTDF Petro Matad Ltd Ord 0.08 0.00 0.00 50,000

Comments

Emerging Growth

Star Navigation Systems Group Ltd.

Star Navigation Systems Group Ltd is engaged in the development, marketing and promotion of in-flight safety monitoring systems.

Private Markets

MyForce, Inc.

As parents, we constantly worry about the safety of our loved ones. The media bombards us with incidents from across the nation school shootings, frequent assaults on campuses, and crimes…

Uber

Uber connects riders with safe, reliable, convenient transportation providers at a variety of price-points in cities around the world. Uber makes money from charging their drivers 20% of the fare…