Should we fret about US steel makers selloff?

Last week, I posted about the possibility of a play in steel stocks, in line with the listing of Perwaja (go here). One of the point that I have made is that US steel sector index, DJUSST has posted fairly strong recovery. A few days after that post, the DJUSST fell sharply again. As at last Friday, it closed just below the 400 level. This means that it is now below the strong horizontal support of 430. The next strong support area is at 340-350 level.


Chart 1: DJUSST's daily chart for August 8th (source: Stockcharts.com)



Chart 2: DJUSST's weekly chart for August 8th (source: Stockcharts.com)

I have appended below the table of All Carbon Steel Products Composite Price & Index (June 2006 to July 2008) from MEPS (INTERNATIONAL) LTD, the leading independent supplier of steel market information. From the table, we can see that the Prices & Indices of Steel Products are holding up quite well in all regions, including Asia. However, it was noted that the London Metal Exchange's 3-mth forward contract for billet had dropped from its peak of USD1167 per tonne in late June to USD845 per tonne last week. This was highlighted in an article entitled "Steel prices may have peaked" in the Edge newsletter dated August 11, 2008.


Table: All Carbon Steel Products Composite Price & Index (June 2006 to July 2008) from MEPS (INTERNATIONAL) LTD

With these conflicting signals, the likelihood of a play in the steel sector will be greatly diminished.