WSD Strategic Insights CXX: Steel’s industrial structure in metamorphosis, favoring leading steelmakers.

lunedì, 06 maggio 2019 18:57:36 (GMT+3)   |   Brescia
       

The industry’s “industrial structure” has changed for the better, in WSD’s opinion, from the viewpoint of well-positioned steel mills’ profitability over the steel cycle.  Here are the reasons: 

  • Steel’s new “Age of Protectionism” has been in effect since the third quarter of 2016.  This game-changing development enables many of the mills to garner higher prices in their home market.  The “Age of Protectionism” is most fortuitous for the mills because the leading international steel companies are no longer able to consolidate sufficiently on the world market to boost their “pricing power” via M&A activity.   
  • The ongoing defeat of the Chinese steel mills’ exporting armada.  Trade suits, air pollution and a host of ineffective smaller companies are some of the factors at work. 
  • Lessened odds of a global financial crisis – in part the result of low interest rates (that, in WSD’s opinion, are in part a function of the surplus funds circulating the globe seeking high returns).   The Information and Technological Revolutions, as well, hold down inflationary pressure as they spur productivity gains sufficient to offset a good portion of wage increases. 
  • Likely lower prices over the steel cycle in the next decade for steelmakers’ raw materials. 
  • Rising capital spending in many countries as a share of GDP.  This outcome is due to:
    • China’s economic model is a persuasive one to follow.  It’s succeeded in implementing the “Capital Fundamentalism” economic theory that places emphasis on fixed asset investment benefits.   
    • Policymakers’ fear that artificial intelligence will eliminate so many jobs that, unless there’s a surge in fixed asset investment, there will be a net job reduction.  It’s difficult for a government to long survive when job opportunities in its country are diminishing. 
    • Growing opportunities to hedge the steel price risk on futures exchanges.

 

 

 

 

 

 

 

 

 

 

This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict.  Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors.

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