The common stocks of steel companies and their raw material suppliers have underperformed the stock market this year. For the first 26 weeks of the year, our composite index was down 18 percent while the S&P 500 common stock index rose 7 percent.
The owners of steel and steelmakers' raw material common equities have been faced with a handful of problems. First, most of the companies' earnings have come down. Second, some of the steel companies' assets have been put up for sale at bargain basement price levels (which raises questions about the true value of those assets not for sale). Third, banks and other sources of lending have often not been willing to make funds available at attractive price levels to steel companies and steel middleman companies. Fourth, it's been clear that fixed asset investment spending outside of China has been lagging, which is bad for steel demand on a one- to two-year basis. Fifth, oversupply for steel in China has probably become the normal condition; if so, the Chinese steel mills will be taking more aggressive actions to boost export sales over the cycle.
The Global Steel Finance (GSF) global steel stock index has been declining since mid-2011, falling 39 percent from a peak index figure of 293 to 178 at present. During this period, the S&P 500 Index has risen 23 percent from 168 to 208. Virtually all of the steel-related sub-sectors have performed poorly including those for steel companies in the Far East , Brazil, Europe, Russia, Japan (although recovered somewhat recently) and the US.
- The Steel Middleman Index has performed far less badly than those for the iron ore companies and coking coal companies. Its current price is 224, which is a bit down from July 2011.
- The Iron Ore stock index is down from a 2011 high of 885 to 462 at the present time; although, it's still far above the index figure of about 100 from 1997 to 2003.
- The coking coal producer index is down from 900 to 101; or, about where it was in the period from 1997 to 2004.
- The Chinese steel mill index is low from a peak of 457 in September 2007, to currently 92.
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