By Paul Homewood
Seeking Alpha, an investment advice website, has rather bad news for the European steel industry.
Vale, by the way, are the world’s largest producer of iron ore:
- The EU steel industry seems set to shrink dramatically, squeezed by environmental policies, and a seemingly permanent energy crisis situation that makes production costs unsustainable.
- Vale is mostly shielded from the kind of problems faced by companies that have extensive exposure to Europe, given its mostly Americas-based production infrastructure.
- The prospects of the European steel industry being decimated should help to keep global steel prices relatively high, which should counterintuitively keep iron ore prices high as well.
Investment thesis: There are growing signs that the European steel industry can potentially collapse, becoming just a shell of itself. Vale is shielded from the problems facing companies that have business ties exposure to the European energy crisis, which is compounded by increasingly draconian environmental policies that make it hard for energy-intensive companies to operate. At the moment the EU steel industry, as well as many other industries are kept afloat by hundreds of billions of euros in aid & subsidies, which is not sustainable in the long term. The assumed collapse in EU steel production is a positive factor for those miners supplying the steel companies, such as Vale that are not directly exposed to the difficulties that the European-based steel production facilities are faced with. On the back of assumed higher global steel prices, Vale stock is likely to see more long-term price appreciation, while the very generous dividend is less likely to be cut.
The European steel industry is already working under draconian environmental regulations and carbon taxes which put it at a disadvantage with foreign steel mills. And now of course high energy prices are putting the whole existence of the industry at risk.
Meanwhile the climate zealots who run the EU and UK want steel businesses to spend billions more to close down the efficient manufacturing processes which actually work, and replace them with low carbon technology, all enforced by cdrippling carbon taxes..
The net result will, of course, be importing more steel from Asia, made with much greater emissions.