- In FY2019, India is predicted to replace Japan as the world’s second largest producer of steel
- Demand will be largely driven by domestic demand, with significant constraints on domestic supply
- Raw material cost can be upto 70% of the total cost of steel producers and is a bigger risk than a global tarrif war
- Operating leverage will not mitigate raw material risk, price is not expected to spike and as a result realizations per tonne are not expected to change dramatically
- Value may be found in distressed companies or leading steel makers but the rest could be value traps
Metals and mining was the best performing sector of 2017. Further upstream, carbon rod manufacturers like HEG have created enormous investor wealth. Further upstream, investors are now looking at steel companies to lead the next wave of wealth creation. Continue reading “The Scoop on Steel: Boom times or Value Trap?”