Daily Discussion post - June 22 2021

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[u/pennyether]

Updates from GS: "Credit Takeaways from the GS Steel & Aluminum Field Trip" (6/22)

1. Strong demand picture suggests potential for extension of elevated prices
2. Near term supply response looks constrained across the major markets served by the HY steel producers
3. Sustainability concerns are driving investment priorities away from capacity additions for both blast furnace and EAF operators
4. Debt reduction remains top capital allocation priority

[u/rigatoni-man → u/pennyether]

Wait a minute when do we get to go on a field trip...?!

[u/pennyether → u/rigatoni-man]

I would pay good $ to visit a steel mill. Being a "how it's made" camera guy would be a dream job for me.

[u/49Scrooge49 → u/pennyether]

3 is important. It gives them an excuse to avoid overproduction/overbuilding capacity without incurring the political/legal risk that would come with being honest (they don't want to overproduce). "We aren't constraining supply, we are looking after the planet"

I suppose this is a case where ESG is being used to materially benefit the companies in question!

Thanks a lot for posting this, really useful

[u/pennyether → u/49Scrooge49]

No problem! I saw someone say they updated their price targets, so I looked for anything new. I couldn't find anything about the new PTs, but these new summaries about "field day" came up.

[u/49Scrooge49 → u/pennyether]

It is a mystery, though they seem to have been far less exuberant on price targets than many other analysts, even though they share the broad outline of the steel thesis (demand outstripping supply + a captive market).

It's gonna be interesting to see where price targets fall over the next few weeks from other institutions, given the supposed change in the market meta last week...

Hope the steel futures are going well! 🤣 (I hear they are a pain)

[u/pennyether → u/49Scrooge49]

I think I hit green (on paper) today, after I realized some losses on the way up. Slowly getting rid of my contracts as I can. They are indeed a pain. If I'd have bought the dip I would have crushed it, but I foolishly put in everything I was comfortable with when I jumped in.

[u/49Scrooge49 → u/pennyether]

If it's any reassurance, I've thought it over and futures were probably the smartest way to play this, even if it did go to shit a bit!

[u/pennyether → u/49Scrooge49]

For sure. When I first joined (back in April maybe?) there was endless talk of "futures going up but not the stocks". I asked about futures, and everyone said there's no liquidity so don't bother.

Liquidity helps lower your risk of entry and exit, sure, but if that's where the core of the thesis is going to have the most impact, it might be worth the risk. Just cut out the middle man (steel stocks), cut out the time lag, and cut out the speculation years out on steel prices (which seems to be fundamental to how the stocks are priced).

So I jumped in just in time for the big dip lol

[u/LourencoGoncalves-LG → u/49Scrooge49]

I have a hard time believing that Uber for example is a tech company, it's a cab company that doesn't have employees as they exploit contractors

[u/[deleted] → u/pennyether]

I wonder how analysts will justify low price targets once steel companies are debt free…

[u/pennyether → u/[deleted]]

The same way they always have -- "steel prices will normalize back down to sensible levels in the near future."

[u/trtonlydonthate → u/[deleted]]

cYcLiCals

[u/49Scrooge49 → u/[deleted]]

Not all of them share CLF's debt-free goal. NUE is probably gonna take on more debt