Mike Norman, HardAssetsInvestor.com (Norman): Hello everyone, and welcome to HardAssetsInvestor.com's interview series. I'm Mike Norman, your host.

Well, after doubling in price, steel has come down sharply – in fact retracing all of its gains over the past few years in very short order. Here to talk about the outlook for steel is Paul Quartararo. He is a partner with SPECTRA Resources. Paul, thanks for coming back on the show. It's good to have you.

Paul Quartararo, partner, SPECTRA Resources (Quartararo): Thanks for having me.

Norman: Well Paul, the last time you were here we were talking about the strength in the steel market. You at that time were looking for higher prices, which indeed happened. But you also said that looking somewhat further down the road you were looking for a peak. I don't think you were expecting anything as severe as what we've seen, but tell us about it. We saw a doubling, and then just in the past five or six months, steel prices have retraced all of the move that we saw in the prior five years, right?

Quartararo: Mike, it's been really an incredible year. Last time we met, prices were around $580 a metric tonne. In the peak, in the summertime, probably in July, the price of steel went to $1,200 a metric tonne for hot coil rolled steel. Since that time, the prices have completely contracted, and now we're back at levels below that $580 a tonne.

Norman: Below. So even more than the move we saw in the run-up?

Quartararo: That's right.

Norman: Nobody really expected that. I mean, we've seen it throughout the entire commodity complex, maybe with the exception of gold, which has held on to most of its gains. Severe retracement – and in the case of steel, I guess we can understand why. It was the global economic slowdown, the credit crunch, etc. But did anyone in the industry expect it to come down, not just all the way, but even lower than where it was when it started off?

Quartararo: No; I mean, the philosophy this time has been that, when the prices were going up, that due to consolidation in the steel industry, there would be more discipline in the price on the way down, and it wouldn't come down as much. But that all went by the wayside once demand dried up due to the credit crisis, and prices just continued to slide down at a very bad pace.

Norman: Now one thing that may be a very significant factor: We still hear about economic growth in China – it's throttled back. Here in the United States we're in a recession. But the automobile industry – talk about that. The automobile industry is probably the main source of demand for steel, and the automobile industry has gotten clobbered. Clobbered!

Quartararo: That's absolutely right, and everybody knows what's happening in the auto industry right now is a very serious problem. Steel is going to be affected, as far as buying is concerned. And what the steel mills have done domestically and abroad is they have reduced their capacity tremendously. Here in the United States we have about 30 blast furnaces that could create steel from raw iron ore. Right now, they've taken out 19 of those 30 blast furnaces, which has reduced supply capacity by more than 50%.