The Rising Influence of Rising Affluence

[DewDiligence]

Re: US steelmaking industry (CLF)

Industry executives and analysts expect production to drop further, even as manufacturers reopen plants. High stockpiles at distributors will likely be drawn down before companies place new orders, said Credit Suisse, which expects sheet-steel demand to plummet 50% in the second quarter from a year ago.

When orders do pick up, executives expect that businesses will spend less and that high unemployment will weigh on demand for autos, construction materials, and energy equipment.

Let’s talk about each of these three industry segments.

The piping (i.e. energy) segment of the steelmaking business might be dead for a few years, but the oil industry has a way of surprising people, so I would not completely rule out an upturn.

The construction segment of the steelmaking business could be revived by a big infrastructure bill, which politicians from both parties keep talking about.

For the auto segment of the steelmaking business (the segment most consequential to CLF), I wouldn’t be surprised to see Congress enact a (temporary) federal tax credit for purchases of new passenger vehicles (not just EVs, LOL).

For CLF, specifically, the current valuation presupposes no rebound in any segment of the US steelmaking industry in the next couple of years, so there’s a lot of upside if any of the above scenarios comes to pass.