Two Brazilian steel making companies are already up 25% so far this year.With the first full trading week over, I was researching for the top performing ADRs. The two steel companies kinda stood out because of the rise in stock prices.
Commodity prices have fallen tremendously in the past few months and steel was no exception. As the demand for commodities like silver, steel, plastics, tin, aluminum, etc. collapsed companies manufacturing those commodities got slaughtered. Alcoa recently announced on a big layoff and cut in production due to lower demand for aluminum. Construction is slowing worldwide. Hence demand for steel should be going down which would make the steel stocks go down as well. However that is not happening now. Steel stocks are rising.
Apparently the steel makers have cut production to reduce the supply as the demand has fallen. CommodityOnline.com says: “The slaughter undergone by steel prices recently seems to be over; announcements from steel producers that they are slashing output has apparently persuaded the market that they mean business about getting supply closer balanced with likely future demand.” Demand may pick in the USA if the Obama stimulus plan is implemented which may invest heavily in infrastructure upgrade.
Brazilian Steel Stocks:
1.Companhia Siderurgica Nacional (SID) is up 25.76% year-to-date as of market close past Friday. SID is a fully integrated steel producer making many related products. In addition to steel the company limestone, dolomite and tin. SID pays a dividend of 1.12% and the annual revenue growth is about 25% in the past five years. As per an S&P; Quantitative Stock Report dated Jan 3, 2009 a $10,000 investment in SID 5 years ago would have grown to $46,217 for a return of 462%.
2.Gerdau S.A. (GGB) operates 43 factories in Latin America and North America. The current yield is 1.88%. Annual earnings growth in the last 5 years is 47%. In 2008 the company had about $20 B in revenues.
As the commodity prices continue to make wild moves in 2009, it will be interesting to watch the sector stocks. Though the steel prices seem to be stabilizing now investing in stocks in this sector is highly risky. Only those investors who have stomachs for gut-wrenching roller coaster rides must invest in commodity stocks.
