Steel/Inventory: Inflation will eliminate the wind of rising prices
Supported by deflationary trading, the stock prices of steel producers such as ArcelorMittal and Nucor have skyrocketed in recent months. However, their stock valuation has collapsed. Buying cyclical commodity stocks at a low valuation is usually a bad choice. The stock market seems to be considered the highest peak of steel prices.
Inflation figures have been strong recently. April data The consumer price index in the United States and the United Kingdom has both risen sharply. These increases partly reflect the fundamental adjustment effect of the global blockade in many countries last spring, which weakened the prices of all assets and commodities.
Nevertheless, manufacturers still have to make difficult decisions. In the past year, these major inputs have caused prices such as steel and copper to soar.
Consider the automotive industry. Each car uses about one ton of steel. The manufacturer will purchase most of its demand according to the contract one year in advance. The next negotiation will take place in the next quarter. After a price increase of approximately US$600 per ton in the past year, the price of new cars should increase by 3%. As steel inventories are at record lows, manufacturers may become price takers.Even the possibility of a small steel manufacturer like Sanjeev Gupta Free steel The threat supply may be shut down.
But steel is only part of the car. Jefferies said that since June last year, the auto investment spot index has doubled. On this basis, the increase in car prices may be much greater, with an average increase of 8%.
In 10 of the past 11 weeks, ArcelorMittal has increased the cost of its main products. Its market value has increased by more than one-third this year. However, its corporate value forwarded by the EBITDA multiple has shrunk to 3.4 times, close to a 10-year low. Peers Nucor of POSCO in the United States and South Korea also experienced similar pressures.
The market clearly doubts whether commodities such as steel can continue to grow without disrupting demand, or worse, interest rates will not rise sharply. Investors should pay close attention to valuation tightening, which is closely related to price inflation.
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