Wednesday, May 06, 2009

Why Steel Is Up

I had a reader ask me earlier why steel stocks were doing well today. Several of them, such as US Steel (X), Nucor (NUE), and AK Steel (AK) just announced their earnings in the last couple of weeks where they warned of slowdowns in their business. They've all been doing their best to reduce costs.

The reason for the rise today is that the shippers are doing well, as is Coal, as is Ag, as is Energy. James River Coal (JRCC) annouced a great quarter this morning (up 24% today now) and we also had the postive news from DryShips (DRYS). It's a commodity day today.

Stepping back, even with the steel companies' cautious comments, basic materials have taken a huge hit in the last 6 months. They are going to participate better than the market, as the economy shows further evidence of stabilization and then growth. Once true inflation kicks in from current Fed policy, that's when you should really expect commodities to fly.

I like all these parts of the materials sector, including steel, to do well this year. However, I tend to favor smaller stocks like AK vs. big integrated companies like Arcelor-Mittal (MT) or X. The scrap steel providers like Schnitzer (SCHN), Steel Dynamics (STLD), and Metalico (MEA) will move later than the steel companies as they are further downstream. I like MEA a lot from here as it hasn't yet full participated in the rally of the last few weeks.

Position: Long MEA.

Originally published in on 5/1/2009 3:01 PM EDT

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