The Rising Influence of Rising Affluence

[DewDiligence]

Investing in the steel-related industries at this point is risky at best. The american auto industry is in the process of stripping as much steel out of their product as possible because of the new fuel standards (Ford only today announced replacing 700 lbs of steel per F-series truck with Alum) coupled with China overproduction situation. In the near future, scrap might be the only ingredient you need.

Not likely, IMO. If you’ve been doing your homework (i.e. been reading the posts on this board), you’ll know that China’s steelmaking industry is inefficient and is badly in need of consolidation. As China’s higher-cost mills shut down due to their inability to operate at a profit, production will shift to China’s newer, lower-cost mills, all of which use iron ore as an input material. That’s why all of the large iron-ore producers are forecasting stable or increasing production levels during the next year or so.

The US auto industry is a drop in the bucket relative to the global consumption of steel and is all but immaterial in the supply-demand balance for the global iron-ore industry.