Leading steel cycles

GUEST COLUMN

Steel was in big news till early 2006. But since then, the news flow has eased.

There can be many reasons why we talk about steel less now, then we did at that time. Steel prices are slumping since July 2006. And current prices are even lower from November levels.

Though Arcelor-Mittal is on a new high, there is enough evidence that the current dip in steel prices internationally and for Tata Steel might continue for a while.

According to historical data available on steel cycles Armco Steel, US Steel, Bethlehem Steel, Inland Steel, Jones and Laughlin Steel, Republic Steel and many of the erstwhile steel companies operated on a cycle of sales, production, earnings, stock prices of 6 years. We tried to place that cycle on local steel major Tata Steel and witnessed signs of a recurring cycle trend here too.

Steel has been known to bottom out before a broad market bottom and top before a market top. It's a leading sector indicator. The outperformance of steel at the 2000 bottom suggests it was time for a broad market move up on a primary degree (multi-year).

The current underperformance of steel looks still of intermediate nature (multi-month). However, if the cycle comes into play we can be speaking about more sideways action ahead for steel and probably lower prices ahead.

(Contributed by Or-phe-us.com, a global alternative research company. Visit business-standard.com for the complete report)