Global Call Transcript: Cautious ’09 Tone
􀂄 Recent global call highlighted challenges across the globe
In a late January call, UBS regional steel analysts discussed opportunities and
challenges seen heading in to ’09. In this note we provide the full transcript and
slides from the presentation. We also discussed leading indicators, with some
positive signals from global shipping rates and Chinese demand. Yet we identified
risks for volatility, as borne out of late by Chinese steel price weakness in the past
2 weeks days and weaker shipping future rates.
􀂄 Key themes: timing, costs, stimulus, and supply
Analysts discussed the levels of inventories relative to production, with China, US
and Japan boasting the leanest domestic supply. Higher inventory levels were
evident in Germany and Korea, for a potentially longer destocking phase. Lowercost
producers include Russia and Brazil, with Russia eager to increase capacity
and Brazil still likely to see domestic prices falling. One catalyst for improved
earnings can be lower iron and coking coal prices, for mills tied to long-term
contracts. Aside from stimulus in China, US, and Korea, and inventory restocking,
there was little discussion of improving demand, with risks of further credit-related
demand deterioration.
􀂄 Sticking with solid balance sheets, low/variable costs
Top picks include: Steel Dynamics, Gerdau, Posco, ThyssenKrupp, NLMK, and
Maanshan. We see more upside from improving volume than from better pricing
near term. We are more cautious on Acerinox, Japanese names, and U.S. Steel.