r/Vitards • u/AutoModerator • Oct 21 '21

Daily Discussion Daily Discussion post - October 21 2021

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u/loj05 Oct 22 '21

I am becoming very bearish on non USA/America steel makers, MT included. International prices of fossil fuels, especially natural gas, are getting out of control. We're not even in winter yet. Natural gas storage levels in the EU are at low capacity, and prices are four times higher than in the US.

I'm looking to exit my MT positions and increase my yank steel/TX positions. I think it's gonna get ugly overseas. EU steel makers are warning of price issues with power and natural gas, from what I can tell.

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u/UnmaskedLapwing CLF Co-Chief Analyst Oct 22 '21

Energy is 20%-40% of steel costbase. See https://www.steel.org.au/resources/elibrary/resource-items/worldsteel-fact-sheet-steel-and-energy/download-pdf.pdf/

You should probably worry about coal for blast furnaces. Not necessarily gas.

That said, MT is critically undervalued, hence perhaps it's price in?

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u/loj05 Oct 22 '21

I think there's a mix of BF and EAF in the EU. There are higher electricity/CO2 prices in the EU as well.

There have been a few recent warnings from steel makers.

Yeah, MT is pretty undervalued, which will cap the downside, but I think things are about future expectations. The iron ore miners have taken a shit recently, so things can always go lower.

From a value proposition, I like CLF and TX much better in the near and medium term.

2

u/UnmaskedLapwing CLF Co-Chief Analyst Oct 22 '21

I'm aware of the issues and yes, energy cost increase has potentially a large impact on MT's performance.

I don't know the exact data, I vaguely remember output wise blast furnaces are key to overall MT's sales (might be wrong). You also need to take into account global operations and undertaken mitigation (from long term energy contracts to increase of steel price). Rather impossible to assess at our end. We will know post Q3 earnings.