WSJ: Steel to Rise by 20%

Today, The Wall Street Journal reports that the price of steel could rise by up to 20% in the aftermath of Hurricane Katrina. This comes on top of another 20% price increase that came last week. The reason for the high prices is that there’s a limited supply of liquid hydrogen which is used to make higher-quality steel.

Air Products & Chemicals Inc., a major U.S. producer of hydrogen, says it can’t deliver liquid hydrogen to customers because of damage to its plant in New Orleans. The Allentown, Pa., company is uncertain when it can restart production.
Steelmaker Steel Dynamics Inc., of Fort Wayne, Ind., told customers Friday it is suspending future orders of value-added products such as cold-rolled, galvanized and painted sheet-steel products because Air Products was its main hydrogen supplier. U.S. Steel, Nucor and Netherlands-based Mittal Steel Co. said they have alternate supplies of hydrogen and don’t expect the shortage to affect them greatly.

The steel group had been a fairly poor industry over the past few decades. But the group has done extremely well is that last 2-1/2 years. Much of steel’s resurgence has been due to China’s insatiable appetite for steel.

The industry got a nice boost last week when Morgan Stanley reported a bright outlook for the sector. Morgan sees China being the critical factor which will help all metal stocks over the next five years.

Also, this weekend’s Barron’s noted that Congress will use a $100 million emergency relief fund to help rebuild Louisiana’s roads. That comes right after the huge highway bill that the president recently signed. Barron’s speculated that same of the big winners would include Texas Industries, Nucor and Caterpillar. The highway bill “guarantees a minimum of $227.6 billion for roads between now and 2009; the remaining $59 billion is for transit programs, such as commuter rail lines, and for pork projects, such as the Frank Sinatra waterfront walkway in Hoboken, N.J.”

The fall of the U.S. steel industry has been pretty dramatic. In fact, most of the major steel companies are no longer American. Mittal Steel is based in the Netherlands. Posco is based in Korea. Gerdau is Brazilian. The best U.S. steel stock is Nucor. Steel stocks are still well off their highs of six months ago, but it rally might not yet be over.

Posted by Eddy Elfenbein on September 7th, 2005 at 10:35 am

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