Thursday, June 18, 2015

Seeking Alpha: After A Lot Of Pain, Can ArcelorMittal Deliver Some Gains?

Not every steel stock has been a crushing disappointment since my last update on ArcelorMittal (NYSE:MT), but most of them have lived down to that generalization. That 10-month stretch has seen Steel Dynamics (NASDAQ:STLD) fall almost 10%, while Gerdau (NYSE:GGB) has fallen more than 50% and ArcelorMittal itself has fallen another quarter. As I said, there have been a few exceptions as voestalpine (OTCPK:VLPNY) and Salzgitter (OTCPK:SZGPY) have managed positive returns in U.S. dollars.

The simple answer to what's gone wrong is that prices continue to erode in the face of too little supply discipline and weak demand. Iron ore prices have effectively collapsed and hot-rolled steel prices are down by double-digit amounts from the prior year. While conditions have actually been improving in Europe, North America and Brazil are still looking at lackluster demand and meaningful import competition.

Is ArcelorMittal at long last a true bargain or is this just a reloaded value trap? Over the long term, I lean toward the latter as I believe the company's iron ore operations are structurally disadvantaged and the company is unlikely to earn a good return relative to its cost of equity. In the short term, I think it's possible to make a more bullish argument as the shares seem to be pricing current conditions as close to a new normal.

Read more here:
After A Lot Of Pain, Can ArcelorMittal Deliver Some Gains?

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