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The 2007 Peanuts Steel Index
LINK TO PRIOR QUARTERLY UPDATE
It's time for the 2nd quarterly update of the PSI.
current value of $67,324.23
beginning year 2007 value of $52,000.00
- UP 29.47% so far for year 2007
- UP 10.74% since the end of the 1st quarter
- 3 stocks removed from index (2 due to takeovers: CGA and STTX, and 1 due to a move to the pink sheets: SGG) These positions were turned into cash and locked in gains of $1,615.90 (total cash position of $4,615.90), and reduces the total number of companies represented in the index to 49.
- the PSI was UP 41.17% for year 2006
and the current chart:
The market leader in the group is Arcelor-Mittal, ticker MT, It was once just called Mittal, but the Indian Steel giant decided to buyout one of their largest competitors (Arcelor Steel) because Arcelor was not only competing in some of the same product markets, but more importantly competing with Mittal in their bids to buy smaller steel companies. Mittal felt they were over-paying for some of the acquisitions and decided that it was better just to buy their largest bidding competitor than to fight them in bidding wars... another genius move by the Mittal family. The story behind this acquisition is entertaining, and will be one of business's history lessons.
It seems that the consolidation throughout the steel industry has slowed recently as market speculation has raised the valuations on many steel producers. Future consolidation may not be as robust due to this new valuation. However, the early consolidation has taken place for sound reasons:
Not just in the US, but across the world there is a major expansion of infrastructure, urban development, sea-transportation, oil field exploration and development, and also a surge of standard of living expectations in once under-developed nations such as India and China, and depressed nations like Russia. Brazil is also on a steady track of economic expansion. All of this development needs commodities, and large amounts of them. Steel is one of, if not the largest and most important basic needs of any of the expanding micro-economies listed above. But, the steel is a primary need. It is a means to the end- actual products which the people want and need.
The developing economies need steel to produce the finished goods. Steel makers simply provide a product to the makers of the finished goods. I foresee a consolidation among finished good suppliers now that the basic commodity suppliers have gone through a major consolidation phase to beef up their bargaining power (and reduce costs through synergies). Finished good producers have lost some of their bargaining power due to this consolidation... there are simply less suppliers to go to for cheaper prices of their basic needs. Many of these suppliers are much larger, and supply to many different industries and will honor those contracts that pay them the most. Finished good producers must now compete on price for their basic needs in order to be able to maintain quality and their respective market share. They lose at the bargaining table when they say, "we need 20 tons per day of XXX type of steel" They can no longer set the price, because there is another company willing to pay a higher price for the same type of steel in order to serve their own market. A re-balancing will take place. Finished good producers will be forced to consolidate in order to maintain their profitability. That is simple economics.
The Economist published this chart not too long ago with data from the AISI:
This chart tells you 1) which regions are the major producers 2) which regions are the major users, and 3) the difference between what each region produces, and what they use internally.
You can see that the unbalanced data of steel produced and steel used in China means that they are a net exporter, while the same data in the NAFTA region means that this region is a net importer. Those regions which are net importers will see the consolidation among finished product producers. The current balance of power currently rests with steel producers within regions that are net importers.
LINK TO PRIOR QUARTERLY UPDATE
It's time for the 2nd quarterly update of the PSI.
current value of $67,324.23
beginning year 2007 value of $52,000.00
- UP 29.47% so far for year 2007
- UP 10.74% since the end of the 1st quarter
- 3 stocks removed from index (2 due to takeovers: CGA and STTX, and 1 due to a move to the pink sheets: SGG) These positions were turned into cash and locked in gains of $1,615.90 (total cash position of $4,615.90), and reduces the total number of companies represented in the index to 49.
- the PSI was UP 41.17% for year 2006
and the current chart:
The market leader in the group is Arcelor-Mittal, ticker MT, It was once just called Mittal, but the Indian Steel giant decided to buyout one of their largest competitors (Arcelor Steel) because Arcelor was not only competing in some of the same product markets, but more importantly competing with Mittal in their bids to buy smaller steel companies. Mittal felt they were over-paying for some of the acquisitions and decided that it was better just to buy their largest bidding competitor than to fight them in bidding wars... another genius move by the Mittal family. The story behind this acquisition is entertaining, and will be one of business's history lessons.
It seems that the consolidation throughout the steel industry has slowed recently as market speculation has raised the valuations on many steel producers. Future consolidation may not be as robust due to this new valuation. However, the early consolidation has taken place for sound reasons:
Not just in the US, but across the world there is a major expansion of infrastructure, urban development, sea-transportation, oil field exploration and development, and also a surge of standard of living expectations in once under-developed nations such as India and China, and depressed nations like Russia. Brazil is also on a steady track of economic expansion. All of this development needs commodities, and large amounts of them. Steel is one of, if not the largest and most important basic needs of any of the expanding micro-economies listed above. But, the steel is a primary need. It is a means to the end- actual products which the people want and need.
The developing economies need steel to produce the finished goods. Steel makers simply provide a product to the makers of the finished goods. I foresee a consolidation among finished good suppliers now that the basic commodity suppliers have gone through a major consolidation phase to beef up their bargaining power (and reduce costs through synergies). Finished good producers have lost some of their bargaining power due to this consolidation... there are simply less suppliers to go to for cheaper prices of their basic needs. Many of these suppliers are much larger, and supply to many different industries and will honor those contracts that pay them the most. Finished good producers must now compete on price for their basic needs in order to be able to maintain quality and their respective market share. They lose at the bargaining table when they say, "we need 20 tons per day of XXX type of steel" They can no longer set the price, because there is another company willing to pay a higher price for the same type of steel in order to serve their own market. A re-balancing will take place. Finished good producers will be forced to consolidate in order to maintain their profitability. That is simple economics.
The Economist published this chart not too long ago with data from the AISI:
This chart tells you 1) which regions are the major producers 2) which regions are the major users, and 3) the difference between what each region produces, and what they use internally.
You can see that the unbalanced data of steel produced and steel used in China means that they are a net exporter, while the same data in the NAFTA region means that this region is a net importer. Those regions which are net importers will see the consolidation among finished product producers. The current balance of power currently rests with steel producers within regions that are net importers.
I am trying to be good, St. Peter, to be very very good, so that you won't tell me that's where I have to go. 
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