Behind the Scenes
As I have pointed out on several past occasions, ML and other molybdenum stocks are extremely well-leveraged to the booming worldwide steel demand.Yesterday, the market was given some vaguely worded misinformation that was incorrectly misconstrued to imply that the steel market had lost some of its pricing power.These two paragraphs from Seeking Alpha provides an explanation, and sets the record straight.
(Of course, it is also a mistake to lump ML together with all of the other moly stocks, since none of them can match up to ML’s earnings power.)
JP Morgan notes that the extreme sell-off in steel stocks Wednesday can be largely attributed to a Bloomberg story Tuesday – “ArcelorMittal (MT) Says Half of Customers Rejected $250 Surcharge” - quoting Lou Schorsch, head of MT’s Flat Carbon Americas. The market interpreted this information as the steel producers are unable to pass through higher raw material prices with higher steel prices.
It should also be noted that the $250/t raw material surcharge, or as MT likes to call it “cost recovery program,” was implemented for their fixed price contracts which represent less than 50% of shipments and not for MT’s spot market shipments. The firm views the program as a success by achieving a 50% success rate given this unprecedented move in altering fixed price contracts.
https://seekingalpha.com/article/83712-cleveland-cliffs-should-have-rallied-not-plunged-17?source=yahoo