It is the right time to short steel stocks
Joe Weinman
Feb. 11, 2007

The steel industry meltdown will be so severe that history will keep it in its memory for decades and even centuries. The M&A mania in steel industry, led by emerging nations like Brazil, India and China, has sent the first sentiment and analytic signal that something nasty is going to happen in that sector.

Normally there is lag factor between prices of copper and steel. Both are heavily used industrial metals. Chinese and Indian economies have started cooling down for different reasons. The recession in these countries will be exposed soon and will accelerate very fast. China has to allow Yuan to float in the next twenty-four months. India is suffering from hyperinflation again. The inflation in India will reach 15% by 2009. The government systems in China and India will try to revive the economies but it will not be that easy.

Steel prices have started falling. It follows copper with a little time lag. Copper is trading 40% below its recent peak last year. Steel prices will soon trade 40% below where they are today. Shorting the steel stocks can be extremely rewarding. Look for steel companies with heavy debt-equity ratio – the ones with recent M&A deals. These are the ones that will go bankrupt first.

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Shorting the steel stocks can be extremely rewarding. Look for steel companies with heavy debt-equity ratio – the ones with recent M&A deals. These are the ones that will go bankrupt first.
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