WSD Strategic Insights LXV: Hot-rolled bank export price is often the key to steel company common stock performance

Monday, 14 December 2015 10:37:37 (GMT+3)   |   Istanbul
       

 
 
As indicated in the accompanying graphic, there's been a strong correlation since 1997 between WSD's "Global Steel Finance" composite performance of steel equities and the hot-rolled band export price.  The hot-rolled band export price is a key indicator since: a) most of the major steel companies in the world are steel sheet producers, with hot-rolled band being the key "substrate" for non-HRB products; and b) the HRB export price, with leads and lags home-market prices depending on the country and conditions in place at that time, usually takes into account the steel mills' operating cost due to changes in the prices of iron ore, coking coal and steel scrap.

As indicated, the WSD Steel Group Stock Price Index of steel mill common stocks in 2003-2004 lagged the HRB price; in 2007-2008, it well preceded it; and, since the summer of 2008, has often moved in line with it - although, in 2013, the stock price index had a sharp rally when the export price was about flat.

Currently, WSD thinks that the HRB world export price is close to bottoming because, on an ex-works basis, it's well below the marginal cost of many steel mills - except for steel mills in countries with ultra-low operating costs in part due to currency devaluations.

Our composite stock price index consists of un-weighted price index for the common stocks of 54 steel companies in sixteen countries from eight different regions.  As noted, the index was set to equal to 100 as of January 1997.  In general, the HRB export price is 2.4 times more volatile than the common stock index.  

 
 
 
 
 
 
 
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