Thursday is looking like a rough day for investors in metals companies — and in the companies that transport their goods from place to place.
As of 1:45 p.m. EDT, shares of United States Steel (NYSE:X) and Century Aluminum (NASDAQ:CENX) were down 7.3% and 8.4%, respectively. Star Bulk Carriers (NASDAQ:SBLK), a carrier of bulk goods such as iron ore for producing steel, bauxite for producing aluminum, and also finished metals products, was down by 6.9%, in line with USX’s drop.
You can blame China for all of those declines, by the way.
As Reuters reports, in an effort to combat the rising price of finished goods at its factories (and pinched profit margins for its producers), China’s National Food and Strategic Reserves Administration announced Wednesday that it will “release metal in batches in near future.” Copper and aluminum held in government strategic stockpiles were specifically named as targets of the action, and also zinc, which is used for galvanizing steel.
It’s hard to overstate the significance of this event, which is almost unprecedented in recent memory. Citing analysts, Reuters says this sale of stockpiled metals will be “the first such move in a decade” by China.
Reuters is reporting that China’s move has base metals prices trading “sharply lower.” That’s obviously bad for U.S. metals producers like US Steel and Century Aluminum, because it means greater competition on price from China. It’s also not particularly great news for a company like Star Bulk.
Consider: If China starts using more of the metal that it has stockpiled in production, well … that metal is already there in China. It doesn’t need to be imported — and neither do the dry bulk raw materials used to make even more metal. This will presumably mean less demand for Star Bulk’s services, for so long as the metals-dump on the market continues.
It also looks to me like you can expect the Baltic Dry Index — which had finally popped earlier this week — to head lower again.
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