SAN FRANCISCO (Thomson Financial) - Scrap metal suppliers should benefit
from ongoing strong global demand for steel products and rising ferrous scrap
prices, Canaccord Adams said Wednesday.
Analyst Eric Prouty was bullish on the sector after Commercial Metals Co.
posted its second-quarter outlook Tuesday. The Irving, Texas-based company said
it expects ferrous scrap prices to spike "significantly" in April -- by around
$60 per ton -- and expects prices to stabilize at a higher level than in
previous cycles.
Ferrous scrap prices historically have corrected seasonally around April
through June, but this year's scenario will be different, the company told
investors and analysts in a call, Prouty said. If there is a correction this
year -- and there may not be -- it will occur later, in the May to June period,
he said.
Domestic steel imports remain low. Goldman Sachs said Tuesday that
February's imports, totaling 2.45 million tons, were well below the 3.2 million
tons needed to balance the market and rebuild the supply pipeline.
"Based on tonnage, the largest country decreases in total imports came from
Korea, Japan and Canada," analyst Aldo Mazzaferro wrote in a note to clients.
China has also curtailed exports and Chinese steel now comprises only 10% of
the total imports to the U.S., he said.
"With global market demand very strong, and export supply from many
traditional exporters down due to strong internal demand, it is difficult to see
where global supply will come from to allow the U.S. market to increase imports
in the near term," he said.
That reduction in supply from China is helping steel makers but also
indirectly benefiting scrap metal suppliers, according to Commercial Metals,
Prouty said.
Ferrous scrap prices are also being pushed upward by record iron ore prices.
Prouty added a note of caution to his view, noting that available scrap
supplies appear to be diminishing.
"[S]ome reports have suggest U.S. stockpiles of ferrous scrap are at their
lowest levels in the past 60 years," he said.
Commercial Metals stock closed down 2.6% at $31.34. Among shares of other
companies that Prouty said he continues to recommend, Schnitzer Steel closed up
1.1% at $72.24 and Metalico Inc. fell 2.7% to $10.41.
Brigid Gaffikin
bg/tk1
COPYRIGHT
Copyright Thomson Financial News Limited 2007. All rights reserved.
The copying, republication or redistribution of Thomson Financial News Content,
including by framing or similar means, is expressly prohibited without the prior
written consent of Thomson Financial News.
|