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
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