Tony Daltorio, Investment U Research
Forget Superman… the real man of steel is Lakshmi Mittal, chairman of the world's biggest steelmaker, Arcelor Mittal ADR (NYSE: MT).
Mittal has built an empire – and a personal fortune – by being optimistic when it comes to the global steel industry. And he still maintains that confidence today, recently going on record to say that global demand could rise by more than 10% in 2010.
Meanwhile, many of his peers in the industry sport trembling lower lips over their present and future.
Believe it or not, that ongoing debate matters to everybody, not just those investing directly in the commodity. Steel demand feeds into a huge range of sectors, so much so that many regard it as an important bellwether of industrial trends.
The Half-Empty, Steel Glass
Other than in places like China, demand for steel has plummeted, especially in developed markets such as the U.S. Pessimists expect it to pick up by no more than 5% in 2010, and believe it could tank as much as 15% this year.
If true, that would make 2009's year-on-year decline the biggest since World War II ended, which goes a long way to explain why experts are so downbeat on the commodity.
Just ask Moody's analyst, Matthias Hellstern, who says, "So far, especially outside China, there has been little sign of a real pick-up in demand in the product areas such as construction and cars that rely on steel."
And Dan Dimicco, chairman of #2 U.S. steelmaker Nucor, agrees, advising everybody to remain "cautious about being overly optimistic for next year. The U.S. faces an extended period of low growth. It's hard to see the world going crazy (in terms of steel consumption) without a substantial contribution from the US."
Factor in that steelmakers rely on sheer volume of output to drive up profits, and the picture grows even grimmer.
Even Mr. Mittal's company has suffered. Arcelor Mittal may have produced 116 million tons of steel in 2007, but that number will likely plummet to 70 million this year – about 30% lower than in 2008. In order to erase worries about its high level of net debt – which it intends to bring down to $22 billion by the end of the year – it desperately needs a period of higher profits.
The Case for Steely Optimism
Yet despite the high debt load hanging like an albatross around his company's neck, Mr. Mittal remains upbeat about the steel industry.
Partially, that's because he believes the future still holds a more substantial economic boost than previous thought, thanks to the multi-billion dollar stimulus packages implemented by governments around the world.
