Dresdner Bank - Steel
By Herbert Berger
Steel – a good chance for a super cycle
Customer profile: Continental European Investor
The steel sector, one of the ugly ducklings of investment, might turn out to be a bright star for investors with a specific appetite for risk also in 2004.
The world steel industry looks in better shape this year than ever. Improved prospects for the global economy, insatiable demand from China and consolidation moves among large steel producers have given them greater ability to influence prices and have made the profitability outlook over the coming months relatively rosy.
Recent data continue to confirm tight steel markets. Global steel production figures revealed that the global industry is now constrained on the supply side. Availability, pricing and scarcity of high-quality raw materials, especially coke, has led to a slowing of production growth across almost all of the major steel producing regions in contrast to previous cycles. And, as we continue to pass through this ongoing OECD recovery, steel shortages, in our view will likely persist.
This imposed supply constraint will likely maintain pricing power with the steel producers, which have historically taken around two quarters into an upturn to destroy their own pricing power through excess production.