Blog > Gold and Resources > Recession Investing: Severstal (SVJTF) is crazy
Share this article:
  • Print
  • Digg
  • del.icio.us
  • Facebook
  • Google Bookmarks
  • NewsVine
  • StumbleUpon
  • Twitter

Recession Investing: Severstal (SVJTF) is crazy

Today's Financial News - Posted October 9, 2008

Russia’s largest steelmaker, Severstal (SVJTF) is planning a major Asian expansion at the worst of all possible times. But with the Russian economy in shambles and demand for commodities collapsing, the company can’t be serious.

by Stephanie Grimmett

Baltimore — (TFN): When in doubt, ignore the commodities crash and push your expansion through with sheer willpower. At least, that seems to be the theory behind the latest move by Russian steel giant Severstal (Pink Sheets:SVJTF).

And that theory is a questionable gamble in the current (and any near-future) markets.

There’s a big difference between buying out competitors during a recession and outright expanding during one. The former can bring you a stronger market share and a highly successful business once the storm passes. The latter will more than likely stretch your resources, devour your profits and be washed away by that same storm.

I’m sure you can see why. It’s basic economics. You don’t flood supply during a market contraction. But that’s exactly what Severstal plans to do.

The company wants to build a plant in a still-expanding Asian country. Well, let’s see: China won’t let them move in on its protected and highly controlled steel industry. So what does that leave? India? I’m sure ArcelorMittal (NYSE:MT) (the world’s largest steelmaker) will make their new competitors feel right at home. Singapore? Yeah, like that would ever happen. Vietnam? The two countries might just revive some old friendships.

But the bottom line comes down to the global appetite for steel in coming years. And it doesn’t look like anybody’s going to be very hungry. Asia’s going to need a whole lot of new construction, but “need” becomes a relative term during a global recession.

Don’t take Severstal’s rosy outlook and steely (sorry) determination to expand as a sign that times will soon be happy again. Severstal isn’t prescient. It’s delusional.

****Make sure you sign up for our FREE TFN News Feed for breaking news, special reports and new financial videos. You can pick your favorite reader. Or if you prefer, you can have the feed delivered to your email.


Next Article: Welcome back short sellers!

Related Articles

Posted by Stephanie Grimmett · Filed Under Gold and Resources 

Share this article:
  • Print
  • Digg
  • del.icio.us
  • Facebook
  • Google Bookmarks
  • NewsVine
  • StumbleUpon
  • Twitter

 Add to Technorati Favorites | Follow Us on Twitter!

Be the first to leave a reply.

Your comments are welcome