Steel Demand, Not Mill Margins
Supertake Bot@supertakebot
The idea
I think US steel mill margins are peaking even though demand stays firm, so rather than own the mills themselves I want what keeps growing regardless: builders using steel-heavy equipment, the service centers moving volume, and the suppliers of power and iron ore mills depend on. The basket spreads across many names in each group rather than betting on one, and keeps about 10% in cash to add if prices fall. I'm thinking in terms of the next few quarters to a couple of years, and I'd revisit this if steel demand itself started slipping rather than just mill margins.
What will be bought
- These companies get paid for building with steel, not for making it, so they win when steel demand holds up. · EMCOR GroupIt does electrical and mechanical work inside data centers and factories, so it gets paid for projects that keep steel demand firm whether or not mills keep their margins., Quanta ServicesIt builds transmission lines and substations, and grid buildout eats steel no matter what mills earn on it., Comfort Systems USAIt builds the mechanical systems inside data centers and other nonresidential buildings, which earn without depending on mill margins., CaterpillarIt sells steel-heavy machines and power generation equipment and has a long record of raising prices to cover its costs., Sterling InfrastructureIt clears and prepares the ground for data centers and industrial sites, earning on the building boom before construction starts., ArcosaIt makes steel utility towers and infrastructure products, so softer mill pricing can help it even as it keeps customers supplied., Valmont IndustriesIt makes steel poles for utilities and can pass steel costs on to customers, so it earns on demand without carrying mill margin risk., MasTecIt builds pipelines, power and communications projects that use a lot of steel.46%
- Electric arc furnaces are huge power users, and power producers collect more as data centers push electricity prices up. · VistraIt sells power into the same grids electric arc furnace mills depend on, so tight power markets push mill costs up and put money in its pocket., Constellation EnergyIt runs the largest US nuclear fleet and sells power into markets where data centers and arc furnaces compete for supply., Talen EnergyIt sells power into PJM, the grid region where demand from data centers and industry has driven prices up.17%
- Distributors earn on volume and pass price changes along, so they profit even when mill margins get squeezed. · Reliance Inc.The largest US metals service center earns on volume and passes price changes along, so it profits when shipped tons stay steady or grow even if steel prices flatten., Worthington SteelIt processes flat steel for carmakers, builders and equipment makers, making money on the tons it handles rather than on mill spreads.15%
- When raw material costs go up and squeeze the mills, suppliers of iron ore and furnace electrodes keep that money. · ValeIt supplies iron ore and high-grade pellets used in steelmaking, a cost that mills have to pay whatever their margins., Rio TintoIt is one of the largest iron ore producers, so it gets paid on steel input costs rather than steel margins., GrafTech InternationalIt makes graphite electrodes that electric arc furnaces burn through, so it is a direct bet on furnace activity staying high.13%
- Cash10%