Sean Dillon | June 15, 2009
For the calendar year 2009, steel stocks have the led the stock market higher. Most stocks in the sector have posted well over 100% gains. To put those gains in context though the stocks still need to rise another 250% to reach their May 2008 peak levels. Steel stocks sold off heavily last year before bottoming in November due to foreign countries glutting the market with excess supply, demand falling off a cliff because of the financial crisis, and profit margins eroding.
However, as the aftermath of the Lehman collapse has subsided, steel stocks have been the beneficiaries of many outside factors. Reflationary policies have been enacted in almost every market and fiscal programs of enormous size, specifically in China, have been supportive of the steel industry. In conjunction with the demand boost, steel companies have aggressively cut production to remove the inventory overhang and bottom line costs to stabilize profit margins.
This is a big reason why research firms including Ned Davis Research (NDR) have upgraded the industry to overweight positions. Analysts at NDR studied which stock market groups typically benefit the most when the economy begins to recover from a recession, which they believe is now occurring, and steel stocks were one of the top performers. With cheap valuations, inflation expectations rising, aggressive fiscal policies and perhaps a stabilization of the global economy it is no wonder the stocks have performed so well this year.