Value To Be Had In Steel (SLX, PSTL, X, GGB, PKX, MTL, NISTY)

Mumbai : Globally, steel consumption continues to steadily rise as economic growth returns. According to industry group, the World Steel Association (WSA), finished steel consumption will rise 5.3% in 2011. Over, the next five years, industry groups estimate that the sector will finally reach pre-financial crisis levels. Huge infrastructure projects across the developing world, coupled with more modest growth in developed nations promise to boost the long-term demand for steel. China, the world’s biggest consumer of steel products, will see demand rise by as much as 25% by 2015 versus 2010 demand levels. At the same time, Indian steel demand will rise by 14.3% by 2012. Consumption in Latin America is expected to reach almost 49 million tons this year and grow by 8.3% in 2012.

However, the steel makers themselves aren’t seeing the fruits of this higher demand and prices. Iron ore prices are up sharply, with most ore producers raising prices by 23%. This has caused the margins and gross profits for major steelmakers to fall. For example, Steel Dynamics (Nasdaq:STLD) recently issued an earnings warning, saying that second-quarter earnings per share would be around 22 cents per share lower than Wall Street estimates. With production and rising costs, many of the steel producers have seen their share prices fall hard over the past few weeks.