The on-going steep drop in steel stocks started in early April and preceded the S&P 500’s late April peak. With worries increasing about a global slowdown, I finally decided to look up worldsteel’s last update of its forecasts for 2010 (and 2011). I was quite surprised to find that in April, worldsteel expected “…demand in 2010 will exceed pre-crisis levels of 2007. In 2011, it is forecast that world steel demand will grow by 5.3% to reach a historical high of 1,306 mmt.” Note well that worldsteel’s forecast for a 10.7% increase for 2010 over 2009 demand is equivalent to its 10.1% forecast error at this time last year. With just three months remaining in the year, worldsteel’s forecasts for 2009 generally improved.
I put together a table highlighting the group’s forecast performance for 2009 demand (click for larger view):
Source: World Steel Association forecasts (April, 2009; October, 2009; April, 2010)
Last year, I used worldsteel’s final 2009 forecast to assume steel demand had bottomed. As a result, I nibbled on some steel stocks. During this current correction, I thought I was taking advantage of bargains, but they have only become even cheaper “bargains.” The profits I have instead collected on puts and covered calls on steel stocks have made me question my holdings many times. Given my souring outlook on the market, I will be very inclined to unload most of my holdings on the next rally (assuming one comes sooner than later). Part of the severe sell-off in steel stocks likely comes from concerns about margin pressures from “the recent unprecedented rises in the price of iron ore and metallurgical coal.” I certainly wonder whether worldsteel is in the process of significantly ratcheting down its unabashed optimism for steel demand given the prospects for these prices to pass on to consumers of steel.
Be careful out there!
Full disclosure: long X, AKS, CLF, STLD along with various hedges, long SSO
1 thought on “worldsteel Boldly Predicts 2010 Steel Output to Exceed Pre-Recession Levels”