Is there a crisis in the steel market?

As an investor and market expert, I always pay attention to signals from different sectors to see where opportunities lie or where risks loom.

The steel market, a cornerstone of the global economy, has kept me busy over the past few months. Steel prices have been in free fall. Fifteen months ago, the price was around $120 per ton, but now it fluctuates around $95. This is not a small dip, and the concerns are enormous, especially from China. The president of Baowu Steel, the world’s largest producer, even warned that we are heading for a crisis heavier than those of 2008 and 2015.

What is driving this Steel Market Crisis?

A look at China gives us the answer. The real estate market there has completely collapsed. I have seen this before: the steel market functions as a barometer for broader economic trends. And when demand in China dries up, it has global repercussions. Last Wednesday, the steel price fell by 3% in one day – a sign that we are heading for a tough winter.

What makes the situation even more worrying is that there is a surplus of steel in Chinese ports, with little to no demand. Expectations for this year were initially positive, but it is now clear that demand is much lower than hoped.

What does this mean for ArcelorMittal?

I am closely watching ArcelorMittal, one of the largest steel companies in the world. They are struggling. This quarter they reported much lower profits: earnings per share dropped from €2.23 in Q2 last year to just €0.63. This doesn’t come as a surprise, as analysts had already foreseen this. Yet the stock price is now around €20, significantly lower than the average price target of €29.

There are also issues with currency hedging. Although the company is trying to manage this risk, it wasn’t successful this time. But despite these setbacks, ArcelorMittal is still a powerhouse in the sector, which provides opportunities for investors looking for long-term value. The balance sheet is strong, and the dividend yield is a solid 2%.

My conclusion for investors

These kinds of market fluctuations always present opportunities for those who dare. Although the steel market is currently under pressure, stocks like ArcelorMittal could become interesting in the long term. With a strong balance sheet, a cyclical nature, and a solid position in the global steel industry, an investment could pay off when the market recovers.

If you are considering entering, I would definitely look at the option to hedge your positions or use options. Due to the volatility of the steel market, premiums can be high, but this also presents opportunities. The market is now in red alert, but for the sharp investor, this means there are opportunities.

Of course, this is not individual advice but rather a personal take on the market. Always keep an eye on broader economic trends and make sure your portfolios remain diversified.

Next week

Next week, we will dive further into the energy market and how it affects global supply chains. See you then!