Mr. James May

GLG News^SM Analyses by James May

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Very bullish for iron ore in 2008, not so for 2009

October 19, 2007

Analysis of:China's continued steel demand bolsters iron ore prices, miners | online.wsj.com

Contract prices likely to soar in 2008 Rising supply and weaker demand may lead to weakness in 2009

US industry gets ongoing protection from Chinese and Indian HR coil imports

October 11, 2007

Analysis of:ITC to keep duties on some imported steel | www.chicagotribune.com

US steel industry gains direct benefit from market protection against the major sources of potential over-supply over the next five years. This won't insulate the industry entirely due to a spillover effect. ArcelorMittal illustrates its phenomenal lobbying power and this has to be a success for this company.

Trash talk prior to price negotiations

October 11, 2007

Analysis of:GM looks to substitute materials to reduce costs: Purchasing VP calls price increases "scary" and outlines upcoming plans | www.purchasing.com

This "announcement" is not about substitution, it is about upcoming contract negotiations with its steel suppliers, and an attempt to influence the agenda to offset the supplier power of the steel industry. Substitution is occuring, and will continue to occur (even towards steel and aluminium) but it is not fundamentally price-driven and is not a short-term development. Magnesium has potential and is growing in terms of penetration, but price and performance mean that it has a limited role.

Consolidation alone will not reduce volatility

January 29, 2007

Analysis of:Will consolidation cut volatility in steel prices? | news.moneycontrol.com

Pricing volatility has not been reduced. US HR coil prices have just dropped $150/ton (25%) in the last six months and could easily go up by the same amount in the next six. The difference is that the bottom of the current cycle is above most producers' cost level.

The theory is that consolidation will reduce price volatility as producers can reduce supply to meet demand, without the fear that others will simply supply in their place (i.e. no free-riding). That assumes a closed system. An open trading system is not closed by definition and even if the industry is consolidated on a continental level, it is not consolidated globally.

Consolidation has yet to be tested in a significant industry downturn. I would argue that consolidation in its current form will be useless in preventing prices going below operating costs in the event of a serious reduction in global demand, without an increase in protection.

Indian steelmakers risk over-expansion

January 11, 2007

Analysis of:India Raises Forecast for Steel Consumption | online.wsj.com

Indian consumption was just over 30m tonnes of finished steel in 2005. To reach 200m tonnes by 2020 would require a compound growth rate in excess of 13% for a 15-year period. The previous 15 years has seen a compound growth rate of less than 5%.

Chinese consumption compound growth over the last fifteen years was 12%. Have Indian bureaucrats simply looked at the Chinese performance over the last fifteen years and said that we can do the same? If they have, then they could be setting themselves up for a fall.

 

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