Forget the man of steel, what's up with steel?

I must admit that I've paid more attention lately to Bryan Singer's upcoming entry in Hollywood's Man of Steel (aka Superman) oeuvre than to that old rust bucket industry that makes steel. But, boy, was I mistaken. Surprised by a Bloomberg headline that China is resisting further price hike in iron ore for its steelmakers, I happened upon Morningstar's steel stocks page. Look at this:

Company (ticker) YTD return
Companhia Vale Do Rio Doce(RIO)+7.29%
Mittal Steel Co NV (MT) +31.08%
Tenaris SA (TS) +61.22%
Posco ADR (PKX) +24.1%
Nucor (NUE) +43.59%
Gerdau SA ADR PN (GGB) +42.88%
Companhia Siderurgica Nacional (SID)+46.8%
United States Steel (X) +20.21%
Corus Group PLC ADR (CGA) +34.74%
Allegheny Technologies (ATI) +55.07%

That's a list of the year-to-date returns of the 10 biggest steelmakers by market cap, according to Morningstar. In fact, out of all of the 120 or so industries listed -- surprise -- the steel sector's year-to-date return of over 26% is better than all but two others (agriculture and optical equipment). Sometimes the market is screaming a message even if no one's listening.

What is going on here? Part of the rise is a consolidation play after Mittal made a $22 billion takeover offer for competitor Arcelor (an offer rejected by Arcelor's management). Part obviously reflects continued price hike expectations on the back of China's growth. The decline in natural gas and oil prices is also supposed to improve the industry's profitability. And there was also a bit of concern at the end of last year about over-capacity that seems to have dissipated. This is surely a sector worthy of further digging. But the market's message also makes it much harder to swallow some of the macro analysts' theories about a big global growth slowdown or coming recession.

(Updated March 16) As an addendum, Jocelynn Drake over at Schaeffer's Investment Research says steel stocks are still a good bet because of continued pessimism seen in shares sold short and Wall Street analysts' ratings.

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