In the accompanying exhibit, the WSD Global Steel Stock Group index has a high of 600 and a low of zero (see left axis), while the index for the HRB export price ranges from 1300 to 100 (see right axis). Hence, given that the prices tend to move together, the export price often moves twice as fast as the Global Steel Stock Group price. The Global Steel Stock Group is a composite of the steel stock prices in the USA, Asia, Japan, China, Europe, Russia and Latin America. This composite had a high of almost 500 in mid-2018, when the world export price rose to about $1,100 per tonne; and then fell to just 125 in late 2008, when the HRB export price had plummeted to only about $350 per tonne.
As indicated, steel product price volatility and steel company common stock volatility is prodigious. This unfortunate circumstance is why many steel companies have a relatively low enterprise value.
For sure, the need to hedge the steel price risk for the steel mills, their customers and suppliers is overwhelming. Once liquid steel futures curves exist, this factor will work greatly to the benefit all.
When we observe the common stock prices of Baowu, China’s largest steel company, and ArcelorMittal, the world’s largest steel company, both are about equally price volatile. In 2016, when the ArcelorMittal price plummeted so severely, it was bargain-priced versus Baowu (Baosteel at the time). Baowu is in the midst of an acquisition spree that will cause its size to far exceed ArcelorMittal’s. In the Asian world, size is king.
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