ArcelorMittal (MT) To Cut Prices in South Africa

It is amazing how one price decreases in 1 country is now the "shot heard round the world" in our hair trigger, global markets.

• ArcelorMittal, the world's biggest steelmaker, fell the most in two months in New York trading after saying it will cut South African prices for the first time in a year.
• The company will lower prices for long products, used mainly in construction, by an average of 5.6 percent, Hennie Vermeulen, a spokesman for the company's ArcelorMittal South Africa Ltd. unit, said today in an interview. Luxembourg-based ArcelorMittal dropped as much as 7.8 percent.
• ``This is a very significant development,'' Charlie Dove- Edwin, an analyst at MF Global Securities based in London who has a ``sell'' recommendation on ArcelorMittal shares, said in a telephone interview. ``It's the start of prices falling around the world.''
• ArcelorMittal, founded by billionaire Lakshmi Mittal, has sought to impose surcharges on U.S. and European customers this year, citing rising demand and record raw-material costs. Prices for steel rebar, used to reinforce concrete, have risen 72 percent this year, according to data from industry publication Steel Business Briefing.
• ``This is not a company-wide policy and only related to the domestic market conditions in South Africa,'' Haroon Hassan, a spokesman for ArcelorMittal in London, said by phone. ``We do not anticipate any changes to pricing levels for other regions based on this announcement.''

Now, I don't know if this is the start of a trend as the analyst believes or country specific as Mittal is selling us. But it points to the traumatic reactions in this market to even minor changes - this is one of the biggest companies in the world losing as much as 8% of its value yesterday on a less than 6% price decrease in 1 country. After multiple price increases. Nothing can go straight up and we've been early on this story saying steel prices simply are getting unreasonable - it was to the point projects were being cancelled. [May 17: Fast Rising Steel Prices Set Back Big Projects] [Jul 6: Is the Buck Finally Stopping in Steel?]

But it shows, once more, the video game generation of trading and how such things can set off a cataclysm of trading. Now I'm still old school when it comes to economics but last I checked when/if steel (oil) drop in price, doesn't that recharge demand? i.e. as high prices limit demand, so will lower prices stoke demand. Or do they not teach economics on trading floors? Shoot first, ask questions later. What I'm getting at, somewhat sarcastically is, yes the globe is slowing but it's not ending - the advance of civilization will not be stopping in 2009 but some of these stocks are reacting as if it will. But ... that is like talking to the wall, so you have to respect the ability for these traders and their sell orders to run you over.

What is setting up here, assuming you believe that at some point in 2010 forward the world will resume growth again and we won't be in a 50 year period of "Mad Max", is some great buying opportunities in commodities. Once they are slashed, trashed, crashed and mashed... and abandoned by the hedgies - there are going to be some mighty fine bargains as China, India, and many 2nd and 3rd world countries continue their trek to urbanization and modernization. But between "now" and "then" a mad dash of selling can continue as "student body left" leaves the space.

While we called this early (steel) along with oil [Jun 26: Can a Near Term Top in Oil be Far Away?] within weeks of its top - I have to say I really underestimated just how crowded these trades were and how so many rats jumping ship at the same time would obliterate these stocks. But I live in a conservative, non leveraged world where I shy from risk; whereas these players who piled into these stocks are levered to the gills and apparently push the envelope due to unmitigated greed - hence why I underestimated just how much they apparently have been pressing their bets. As Warren Buffet says, when the tide goes out, you truly see who is naked. (or who has little risk control) Hopefully a lot of these guys go out of business, or their clients get disgusted with what they have done and pull their money so we can return to somewhat rational times in the future.

Momentum x Leverage = Quite an Astounding Display on the Way Up. Quite the Carnage on the Way Down.

No position