Steel Dynamics & the Obama Stimulus

Long (STLD@$11.65)

Whatever questions one might have about the $787bn stimulus plan signed into law yesterday by President Obama (like, is any of the $140bn earmarked for health promoting the coronary benefits of wine) it is safe to say a few things needing steel, useful and not, will get built. The timing in terms of clarity and detail may come after mid year.

Now, the thing about it is that over 70% of the US steel market is in the grip of a handful of mills. It would be hard to pick and miss if you think they are worth buying. That's not to say don't go for a good one: Steel Dynamics is possibly the lowest cost producer in the US and certainly one of the best run.

Still, since 2006 Chinese steel imports have been a major competitor to US makers. But US politics demands that feeding from the fiscal trough be limited to domestic firms. Post stimulus the market state guesswork. But whilst the US government is girding up to spend very depressed steel stock prices deserve some attention.

On the other hand, it must be said that the technical picture is less than encouraging with a support in jeopardy. And yesterday's purchase is already under water.