Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, and welcome to the HardAssetsInvestor.com interview series. I’m Mike Norman, your host.
In the studio with me today for the second half of our interview is Paul Quartararo. He is a partner with SPECTRA Resources, an independent steel distribution firm.
Paul, in our last discussion, we talked about the run-up in steel prices, which occurred over a few years’ period and then very rapidly, I think, from July 2008 until now, when we’ve had in maybe five or six months a complete reversal of that price trend. In fact, as you said, we even went below where we started. |
But now, as you saw that price pattern when you were here a year ago, you say now you’re looking at it a little bit more constructively, with some bullish fundamentals quietly coming into play here. What I wanted to ask you about is the stimulus package, which will be forthcoming, and is going to include a hefty dose of government spending on infrastructure. I mean, just as an observer, that would suggest to me you’re going to need a lot of steel. How does that play into the mix?
Paul Quartararo, partner, SPECTRA Resources (Quartararo): Traditionally, in the past, the automotive industry was the primary indicator of what was going to happen in the future of the economy, whether it’s going to come back or go down. That has changed, obviously, and now people are looking toward steel because steel is used in everything. It’s used in highways, bridges, hospitals, appliances. So people are now looking toward the industry to see when the [economic] comeback is going to happen.
Right now, the domestic steel industry in the U.S. is lobbying the current administration for $1 trillion over the next two years in an infrastructure package. I don’t know if we’ll get the $1 trillion, but there will be something hefty to contribute to infrastructure. That takes a little time, but it would put basically a strain on supply in the future for steel if that does come to fruition. [Editor’s Note: This interview took place before details of the Obama administration’s stimulus package were released.]
Norman: Now it puts a strain on supply for what reason? Is the domestic steel industry saying hey, this has got to be all our stuff, we don’t want any imports? Or is it going to be the market’s open from wherever we can source the stuff?
Quartararo: Well right now, the domestic steel industry is lobbying the U.S. government to specify that it should be U.S. steel only. That would be a tremendous mistake for the taxpayers because you make it U.S. only and they can charge whatever they want; your bill is going to be a lot higher than it would have been if you had that competition from foreign supply. My suggestion would be – I don’t know it they would take it – but my suggestion would be to specify a percentage - let’s say it’s 30%, 40% or 50% – and that has to be U.S. steel only. This way you’re helping out the domestic steel industry but yet you’re still letting in the competition to keep prices fair.
Norman: Now what happens if we don’t get the trillion? The estimates now are in the eights – $825-$850 billion. What happens if it comes in on the low end? What happens if it comes in at $500 billion or $600 billion? Is that less bullish? Would we have to wait longer to see the steel market work out its excess?
Quartararo: I don’t think so. I think that there will be a stimulus package. Fundamentally, whenever an economy is struggling, the first thing they try to do is invest in infrastructure for the long term, because it takes time for that money to be funneled into the economy. So I definitely think that there will be a stimulus package for infrastructure, and even if it’s lower than expected, right now in the domestic steel industry, the United States demand is 100 million tons a year.
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