Investing in High Strength Steel Makes Strategic Sense
Are Steel Companies Ready for the Aluminum Challenge?
High strength steel
Previously, we discussed the highlights of ArcelorMittal’s (MT) automotive strategy. In this part of the series, we’ll discuss some of the recent investment decisions announced by major steel producers.
Recently, AK Steel (AKS) announced an investment of $29 million to produce high strength steel products. These next generation products would help meet automakers’ lightweighting requirements.
U.S. Steel
U.S. Steel (X) acquired complete ownership in Double Eagle Steel Coating Company. This plant produces steel products for the automobile industry. The acquisition forms part of U.S. Steel’s Carnegie Way transformation .
Last year, U.S. Steel announced a new management structure for its business. Under this structure, it appointed James E. Bruno as the vice president of its automotive solutions. Before joining U.S. Steel, Bruno worked with TRW Automotive for 20 years. It’s a very interesting development, where U.S. Steel appointed an automotive industry expert to lead its steel operations.
ArcelorMittal
ArcelorMittal has allocated almost one-third of its R&D (research and development) budget to the automotive side of its business. It claims patented products like Usibor and Fortiform. These products are high strength steel products that help reduce a vehicle’s weight without compromising on the safety.
Vehicle lightweighting offers an opportunity for both steel and aluminum producers. Aluminum giant Alcoa (AA) is already at the forefront of the lightweighting initiatives.
Steel companies stand to gain from higher margins that advance steel products offer. Moreover, these value-added products are quite immune to the tsunami of imported steel products.
By offering innovative and efficient products, steel producers have an opportunity to move up the value chain.
For investors, you can play both the steel and aluminum industry with the SPDR S&P Metals and Mining ETF (XME). XME has ~35% invested in steel companies, while its exposure to aluminum sector is a little over 10%.
You can also visit Market Realist’s Steel page to track recent developments in the steel industry.
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