Steel's Red Hot Quarter Gets Even Hotter as U.S. Steel Strikes Deal
Right now the fast money is closely watching US Steel (X) and the deal they’re about to forge. Today, the company agreed pay $2.1 billion for oilfield equipment maker Lone Star Technologies (LSS). The move caps a wave of consolidation in the past year that's included Indian steel behemoth Mittal's (MT) $22 billion buyout of Arcelor and Russian giant Evraz's (EVR) $2.3 billion deal for Oregon steel. The deal making along with sizzling demand from China has driven the Dow Jones US Steel Index (.DJUSST) 25% higher in the past 3 months. They say strike while the iron is hot – is steel going higher?
Tim Strazzini thinks the consolidation makes all the steel companies more valuable. He says US Steel wants to increase demand for it’s tubular seamless steel – which is used to drill for natural gas, so this deal makes all the sense in the world to him.
Guy Adami says the stock was up 3% on the deal while the market was down. He calls that very telling.
Dylan Ratigan introduces Dan Dienst, CEO of Metal Management (MM) into the conversation. He joins the guys on the Fast Line.
Dylan asks if Dienst is seeing a demand up-tick.
Dienset explains that he runs the largest scrap metal company in North America and he does see increased demand.
Eric Bolling comments that steel is taking off all the way down the integration ladder; from the refiner to the hot and cold rolled steel to the recycler.
Dylan asks if these deals suggest the industry is stretching for growth?
Mr. Dienset says the world is starting to recognize that it’s in “a resource short environment” and scrap is the least mature of all the areas in the metal and mining space.
Eric Bolling says there are three names he likes a lot in the space; CommercialMetals Company (CMC), Schnitzer Steel Industries (SCHN) and Mr. Dienst’s company Metal Management.
Guy Adami adds on a valuation basis MM is getting rich. He recommends investors buy CMC.
Jeff Macke sees it differently, and says if US Steel is buying a pipe company – perhaps there’s not so much growth left in the sector.
Eric also recommends investors buy Companhia Vale do Rio Doce (RIO) and Cleveland Cliffs (CLF) as a derivative play because steel companies will need to buy iron ore.
On MAR 29, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:
Macke Owns (SWY), Strazzini Owns (MO), (NBG), (SNDK), (STM) Bolling Owns (NYX), (ICE), Gold, Silver, Is Short Natural Gas