Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Fog Is Clearing for a Steel Recovery

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The markets are supposed to be forward-looking, but when instability and fear combine to prevent both companies and investors from seeing the horizon, investment capital remains on the sidelines. As the fog begins to lift, though, rallies are born.

When steelmaker Nucor (NYSE: NUE  ) released third-quarter earnings back in October, the company declined to issue fourth-quarter guidance as the industry scrambled to make sense of a rapidly deteriorating global financial outlook. Some may find comedy in finally receiving guidance with just three weeks remaining in the quarter. I find surprisingly bullish signals for steel both from Nucor's recent press release and from around the world.

Nucor expects to record a barely profitable fourth quarter as steel sales decline by 40% from third-quarter levels. Furthermore, the company expects to have used only 50% of its steel mill production capacity, with the undesirable corollary that higher-cost raw material inventories were not depleted as quickly. The company may have to wait until early 2009 to enjoy cost-savings from today's low raw material prices.

Did the world overreact?
Of the 50%-60% drop in orders witnessed this quarter, Nucor estimates that only half represent demand erosion. The credit crunch has placed a worldwide premium on cash and liquidity, leading clients to pare down inventories and otherwise delay orders. Nucor expects orders to increase going forward as sales more closely track the level of demand. Perhaps a growing realization of this disparity between near-term sales disruption and actual demand contributed to the near-70% rally in Nucor's shares from their November lows beneath $26 per share.

This emerging grasp of real demand is echoed elsewhere as well. Goldman Sachs upgraded United States Steel (NYSE: X  ) this week, citing a risk that recent production cuts throughout the industry have overshot the reduction in demand. ArcelorMittal (NYSE: MT  ) revealed that inventories are running very low, and it is looking to reverse some of its production cuts by as early as the first or second quarter of 2009. Major miners like Vale (NYSE: RIO  ) , Cliffs Natural Resources (NYSE: CLF  ) , and Rio Tinto (NYSE: RTP  ) all slashed production abruptly as iron ore and coal prices fell sharply, suggesting a potential supply shortfall in the making. I believe the heat from re-fired steel furnaces will continue to clear the fog from investors' eyes, and I urge Fools to keep watching closely.

Further Foolishness:

If you believe that emerging global economies will lead the way out of this worldwide financial fiasco, take The Motley Fool's Global Gains newsletter service for a 30-day test-drive. Exam its nooks and crannies for free to see how we can help you beat the market.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Cliffs Natural Resources and Vale. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (28)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 793992, ~/Articles/ArticleHandler.aspx, 10/25/2016 1:14:38 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:02 PM
NUE $47.68 Down -0.19 -0.40%
Nucor CAPS Rating: *****
CLF $6.17 Up +0.16 +2.66%
Cliffs Natural Res… CAPS Rating: ***
MT $6.77 Up +0.09 +1.35%
ArcelorMittal CAPS Rating: ***
RIO $33.12 Up +0.25 +0.76%
Rio Tinto CAPS Rating: ***
RTP.DL $0.00 Down +0.00 +0.00%
Rio Tinto plc (ADR… CAPS Rating: ****
X $19.62 Down -0.16 -0.81%
United States Stee… CAPS Rating: **