China's steel story: government slowing down demand

Posted May 14th 2009 6:20PM by Alex Salkever
Filed under: U.S. Steel (X), Nucor Corp (NUE), BHP Billiton Ltd ADR (BHP)

The whole world watches China when it comes to the natural resource play. Iron ore and steel companies have watched their share prices swing wildly based on news coming out of the Middle Kingdom in terms of what Chinese mills will be buying and how much they are willing to pay (particularly for the annual iron ore negotiations). Of late, the steel and iron sector has bounced nicely based on rising Chinese demand. Now noises coming out of China's government imply the steel bounce might have been inflated demand numbers. (via FT Alphaville).

The Singapore Straits Times is reporting that the Chinese government has told banks to slow down loans to steelmakers. All of this points to perhaps a bit less of a China pop for U.S. steelmakers such as Nucor (NYS: NUE) and U.S. Steel (NYS: X) but, more importantly, it could mean lower prices at the annual negotiations for the major iron ore suppliers such as Companhia Vale do Rio Doce (NYS: VALE) and BHP Billiton (NYS: BHP). This could also be posturing to try to talk down ore suppliers in the annual negotiations but keep a weather eye out for more governmental disturbances in China on this topic. Piqqem Sentiment for U.S. Steel Corp. is down 6% in the past week, perhaps mirroring these concerns.

Alex Salkever is Director of Research at Piqqem.com, a stock prediction community powered by the Wisdom of Crowds.

Tags: china, Companhia Vale do Rio Doce, CompanhiaValeDoRioDoce, iron ore, IronOre, steel