From the Coal Face – pardon the pun
We have just written our monthly report to investors of The Montgomery Private Fund and the outlook for the large Materials stocks is not expected, in our view, to improve in the short term. Chinese steel mills don’t see demand picking up. Daily steel production falling 5% every two weeks. While blast furnaces are slowing down, capacity is high and shut downs not happening. We have noted already that inventory remains double that of 2007.
WHat does this mean? Prices can, and we expect will, continue to go down. Not is straight line of course but the outlook appears to be deteriorating even further for the widely held Materials stocks.
In China, steel prices are already hitting 2008 lows.Observers say Iron ore inventory levels at ports is still quite high
Our reading on Steel demand and after breaky with a member of the team at one of the the worlds largest short selling fund is that steel demand will continue to be weak into 2013. I think expectations for a recovery in the short term simply represent wishful thinking by those in denial.
Expects flat to declining steel demand potentially into next year. No consensus on where the new leadership will set the policy. Will need government stimulus to generate steel demand growth into next year.
In terms of Chinese production analysts on the ground in China reckon there is approx 350-400mt iron ore production in China. Domestic producers are still producing but have not been selling the product, hence stock remains quite high.
All of the above of course is noise. Massive oversuppy and declining demand will continue to be the theme for some time and until we see balance sheets and cash flow statements improving for ship builders, cement makers and steel makers. We think investors who sold their BHP, RIO and FMG back in October last year (after speaking with their adviser) when we first started our warnings, should ask their advisers to keep an eye on the quarterlies of the major steel customers.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
nicholas
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“After speaking with thier adviser” Hmmm, seems to me (and this is speaking, off course – to your audience) to have been included as a some-what cynical compliance measure. And I agree, rightfully so…..
Please be aware most, and I say again with added emphasis, “most” “advisers” generally go-with-the-flow on concensus from the funds management and stock broker world and their view (the SB and FM world) is rather cynical of the ‘price’ versus ‘value’, buy-the-business-not-the-stock. (it’s still amazingly not widely followed by them – although this is slowly changing).
The regulator’s stance is to consult a licenced adviser. What I’m getting at here is most licenced advisers simply do not do thier own due dilligence when it comes to share selection…..Cheers