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The Steel Bears Are Winning – Part 2

Screen Shot 2016-02-05 at 2.00.46 PM

The Steel Bears Are Winning – Part 2

Back on 16 March 2015, the conclusion from my blog entitled “China Dumping Steel Is A Cause For Concern” was global steel production had already reached a turning point.

China was expected to produce at least 825 million tonnes of steel in 2015 and according to the executives from Arcelor Mittal, China’s steel exports could jump to 130 million tonnes in 2015, up from 80 million tonnes in 2014 and 50 million tonnes in 2013.

For 2015, China’s steel exports came in at 125 million tonnes, while the figure for the month of December equates to an annualized 139 million tonnes.Screen Shot 2016-02-05 at 1.55.15 PMIn terms of global steel production, China has around 50 per cent market share and this is nearly eight times larger than Japan, the second largest industry player, with 105 million tonnes of production and 6.5 per cent market share.

Screen Shot 2016-02-05 at 1.55.50 PMCompany News:

Arcelor Mittal is the World’s leading integrated steel and mining company and has $17 billion of net debt comprising $15 billion of bond repayments maturing over the next six years. Most steel-making companies are currently operating a free cash flow negative position and we understand Arcelor Mittal is planning a $3.4 billion capital raising which may be announced with its 2015 results, due next week.

Montaka is “short” Arcelor Mittal.

To learn more about our funds, please click here, or contact me, David Buckland, on 02 8046 5000 or at dbuckland@montinvest.com.


Chief Executive Officer of Montgomery Investment Management, David has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

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.

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  1. Hi Roger, thanks. But the facts are not known.

    Of course, the facts of deflation and very high debt levels are known, but the Yuan has only devalued from 6.2 to the dollar (US) to 6.55 to the dollar which is about a 5.5% devaluation. Obviously that’s because the Yuan is not freely floating but is a managed float. Kyle Bass here is talking about a potential 30-50% devaluation against the USD, which may come if China is unable or unwilling to defend the Yuan as it would run out of foreign reserves (this is not a fact at the moment).

    My question is what would happen to markets if such a massive devaluation occurred?

  2. Hi David, Roger & team, well done for shorting Arcelor Mittal!

    Here’s a recent interview with Kyle Bass on why he’s shorting the Yuan and why he sees a massive Yuan devaluation:


    I know you guys respect Kyle Bass’ opinion, so if he is right, what effect do you think a big Yuan devaluation will have on stocks markets in general and Australian stocks in particular?


    • The issue of a declining Yuan is, rather obviously, the expected deflation combined with very high debt levels. The facts are known. What is not known is how sentiment towards these facts will change. But change they will.

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