WEBVTT - KeyBanc's Gibbs Advises Broader Caution on Steel Demand (Audio)

0:00:03.240 --> 0:00:06.600
<v Speaker 1>Global business news twenty four hours a day at Bloomberg

0:00:06.680 --> 0:00:09.760
<v Speaker 1>dot com, the radio plus mobile lap and on your radio.

0:00:10.039 --> 0:00:14.160
<v Speaker 1>This is a Bloomberg Business flag from Bloomberg World Handquarters.

0:00:14.200 --> 0:00:18.159
<v Speaker 1>I'm Charlie Pelletandal the SMP NEZDAC all lower and we

0:00:18.200 --> 0:00:20.560
<v Speaker 1>are brought to you by T two Computing, a new

0:00:20.640 --> 0:00:26.000
<v Speaker 1>kind of I T solutions company for workflow, mobility and infrastructure.

0:00:26.400 --> 0:00:29.800
<v Speaker 1>Let them explain how their expertise can help you gain

0:00:29.840 --> 0:00:33.400
<v Speaker 1>greater business value. Visit T two computing dot com for

0:00:33.479 --> 0:00:36.720
<v Speaker 1>more information. Now let's head right over to the first

0:00:36.760 --> 0:00:39.879
<v Speaker 1>word breaking news test for today's afternoon call. Here he

0:00:40.000 --> 0:00:44.360
<v Speaker 1>is Bill Maloney. Good afternoon, Charlie. Manuals averagers are under

0:00:44.400 --> 0:00:47.240
<v Speaker 1>pressure today, with the DAL currently down fifty eight points,

0:00:47.600 --> 0:00:51.440
<v Speaker 1>SP drop eleven and AZACT declines forty five, small cap

0:00:51.440 --> 0:00:54.320
<v Speaker 1>six hundreds lowered by five points, and the US tenniel

0:00:54.400 --> 0:00:57.520
<v Speaker 1>at one point five six percent. Eight out of tennesse

0:00:57.520 --> 0:00:59.840
<v Speaker 1>to B sectors are lower, led by losses in healthcare,

0:01:00.000 --> 0:01:05.320
<v Speaker 1>materials and technology. Games for utilities and telecom doubt. Transports

0:01:05.360 --> 0:01:08.000
<v Speaker 1>are a little change now as a biotechs where hit hard,

0:01:08.040 --> 0:01:11.679
<v Speaker 1>falling three point two percent, utilities gain one and the

0:01:11.760 --> 0:01:14.880
<v Speaker 1>vix is higher by ten percent down Leaders to the

0:01:14.920 --> 0:01:19.120
<v Speaker 1>downside included United Health Group, Merk and Caterpillar, while Nike, Walmart,

0:01:19.160 --> 0:01:22.480
<v Speaker 1>and Chevron led to the upside. New Amount Mining fell

0:01:22.560 --> 0:01:25.720
<v Speaker 1>as much as eight point three percent amid declines in gold,

0:01:26.000 --> 0:01:29.000
<v Speaker 1>while especially farmer names led to the client. In an

0:01:29.160 --> 0:01:32.120
<v Speaker 1>ESP five hunted healthcare index, Malin fell as much as

0:01:32.160 --> 0:01:34.959
<v Speaker 1>five point nine percent after the belts not look for

0:01:34.959 --> 0:01:38.560
<v Speaker 1>earnings from Workday HP and Williams Sonoma live on the

0:01:38.560 --> 0:01:41.000
<v Speaker 1>first Breaking News dascom Bill Maloney, Charlotte, all right, thank

0:01:41.000 --> 0:01:43.280
<v Speaker 1>you very much. We'll be all over those earnings, Bill Maloney.

0:01:43.280 --> 0:01:45.720
<v Speaker 1>And to hear live breaking news over here Bloomberg type

0:01:45.760 --> 0:01:49.880
<v Speaker 1>squawk a sq you a w K on your terminal.

0:01:50.160 --> 0:01:54.880
<v Speaker 1>I'm Charlie Pellett. That's subloom Bred business slash June listening

0:01:54.920 --> 0:01:58.520
<v Speaker 1>to taking stock with Bim Box and Kathleen Hayes on

0:01:58.600 --> 0:02:03.440
<v Speaker 1>Bloomberg Radio. And I'm alex A Baranca here for Kathleen

0:02:03.480 --> 0:02:06.920
<v Speaker 1>Hayes today and we have Glencore on the mind. The

0:02:06.920 --> 0:02:10.320
<v Speaker 1>company posted its lowest profit in its five year history,

0:02:10.600 --> 0:02:13.560
<v Speaker 1>and it's seen as a reflection of the dire state

0:02:13.720 --> 0:02:16.600
<v Speaker 1>of the mining industry. Here to tell us more is

0:02:16.639 --> 0:02:20.880
<v Speaker 1>Phil Gibbs, vice president and equity research analysts focusing on

0:02:20.919 --> 0:02:24.760
<v Speaker 1>the industry at key Bank Capital Markets. Phil, what does

0:02:24.840 --> 0:02:29.000
<v Speaker 1>this say about what's going on right now with raw

0:02:29.040 --> 0:02:33.560
<v Speaker 1>material prices and and in the industry in general. Hey, Alex,

0:02:33.600 --> 0:02:35.720
<v Speaker 1>good to be with you. From a high level, I

0:02:35.760 --> 0:02:38.920
<v Speaker 1>think there's a common set thread from the release to

0:02:38.960 --> 0:02:41.320
<v Speaker 1>the rest of the global medals and mining world, and

0:02:41.080 --> 0:02:43.799
<v Speaker 1>and I think there's a little bit of cautious optimism.

0:02:43.840 --> 0:02:47.080
<v Speaker 1>There was a clear recognition from Glencore that commodity prices

0:02:47.120 --> 0:02:50.560
<v Speaker 1>have come off the bottom and broader second half profit

0:02:50.639 --> 0:02:54.400
<v Speaker 1>performance should improve a bit versus the first half. However,

0:02:54.480 --> 0:02:57.400
<v Speaker 1>no one is jumping for joy given the world remains

0:02:57.400 --> 0:02:59.880
<v Speaker 1>fragile and the long transition in China, which we've just

0:03:00.040 --> 0:03:04.200
<v Speaker 1>gust in previous calls here from an infrastructure led economy

0:03:04.240 --> 0:03:06.560
<v Speaker 1>to a consumer based economy is just starting and that

0:03:06.639 --> 0:03:10.600
<v Speaker 1>should be a long transition. So Glencore appears to continue

0:03:10.639 --> 0:03:13.000
<v Speaker 1>to be managing the business in a very conservative manner,

0:03:13.360 --> 0:03:16.519
<v Speaker 1>focus on reducing their leverage, maintaining their low cost position,

0:03:16.720 --> 0:03:21.160
<v Speaker 1>selling non core assets, and keeping their previously curb capacities

0:03:21.240 --> 0:03:25.360
<v Speaker 1>offline until better days are ahead and seen. I would

0:03:25.360 --> 0:03:27.560
<v Speaker 1>say year to date at the US steel industry, which

0:03:27.600 --> 0:03:30.760
<v Speaker 1>I follow more closely, has shown similar supply side discipline

0:03:30.760 --> 0:03:33.360
<v Speaker 1>to how Glencore has managed their zinc supply, which has

0:03:33.400 --> 0:03:37.400
<v Speaker 1>supported steel prices domestically. But we think that's changing what

0:03:37.640 --> 0:03:41.760
<v Speaker 1>zinc and coal prices? What are they up about? That

0:03:41.920 --> 0:03:44.839
<v Speaker 1>is all driven by what the production cuts, as well

0:03:44.880 --> 0:03:50.280
<v Speaker 1>as attempts by Bastions government to stimulate the Chinese economy.

0:03:50.600 --> 0:03:54.640
<v Speaker 1>It could be um him, I think I think the

0:03:55.480 --> 0:03:59.000
<v Speaker 1>key factor here is probably more on on the supply

0:03:59.080 --> 0:04:03.520
<v Speaker 1>side um. And my my view is more on the

0:04:03.640 --> 0:04:06.320
<v Speaker 1>on the U S steel industry, where where we've become

0:04:06.320 --> 0:04:08.960
<v Speaker 1>a bit more cautious as of late. I mean, after

0:04:09.000 --> 0:04:11.200
<v Speaker 1>that big run for let's say U S steal tell

0:04:11.280 --> 0:04:13.520
<v Speaker 1>us about what's going on in the U S steel market,

0:04:13.600 --> 0:04:18.560
<v Speaker 1>didn't they sort of have a bountiful time because of

0:04:18.600 --> 0:04:24.039
<v Speaker 1>the imposition of import tariffs they did? Um, I think

0:04:24.240 --> 0:04:29.120
<v Speaker 1>we were cautiously optimistic on the industry, I would say

0:04:29.120 --> 0:04:32.839
<v Speaker 1>balanced the cautiously optimistic most of this year. As of

0:04:32.920 --> 0:04:36.680
<v Speaker 1>late Friday, however, we now believe that's supplying demand, particularly

0:04:36.720 --> 0:04:39.240
<v Speaker 1>for the U S sheet producers, where U S steal

0:04:39.279 --> 0:04:41.919
<v Speaker 1>would be one UH that market we see now tipping

0:04:42.000 --> 0:04:45.159
<v Speaker 1>the modest oversupply based on our view of peaking demand

0:04:45.720 --> 0:04:49.120
<v Speaker 1>and bottoming supply. So we think now after the run

0:04:49.120 --> 0:04:52.800
<v Speaker 1>and steel prices which steel prices UH called hot rolled

0:04:52.800 --> 0:04:55.920
<v Speaker 1>steel has been up over six off the bottom, we

0:04:55.960 --> 0:04:59.200
<v Speaker 1>think pricing is now poised to more aggressively correct over

0:04:59.240 --> 0:05:01.640
<v Speaker 1>the course of the balance of the year here, which

0:05:01.720 --> 0:05:05.200
<v Speaker 1>did lead to downgrades on our views of U S Steel,

0:05:05.320 --> 0:05:09.000
<v Speaker 1>A k UH Steel Dynamics, and Olympic. And I think

0:05:09.040 --> 0:05:12.400
<v Speaker 1>this environment could also create modest downside risk to seventeen

0:05:12.480 --> 0:05:16.000
<v Speaker 1>fixed price automotive contracts, which I think many many investors

0:05:16.040 --> 0:05:20.359
<v Speaker 1>at this point hope and believe are are are would improve.

0:05:20.880 --> 0:05:22.840
<v Speaker 1>Is there a catalyst that would tip some of the

0:05:22.880 --> 0:05:27.320
<v Speaker 1>sentiment around this industry back into more optimism versus maybe

0:05:27.360 --> 0:05:29.920
<v Speaker 1>a we are not out of the woods yet uh

0:05:30.040 --> 0:05:33.480
<v Speaker 1>situation that we seem to have right now. Yeah, I think, Alex,

0:05:33.480 --> 0:05:36.240
<v Speaker 1>it's really all based on on the supply and demand balance,

0:05:36.240 --> 0:05:38.680
<v Speaker 1>and that's really what we what we hang our hat on.

0:05:39.320 --> 0:05:42.320
<v Speaker 1>And we really wanted our most recent survey to tell

0:05:42.400 --> 0:05:46.000
<v Speaker 1>us that the man was stabilizing let's say, incremental supply

0:05:46.160 --> 0:05:48.120
<v Speaker 1>wasn't going to be a factor, but that's not really

0:05:48.160 --> 0:05:52.719
<v Speaker 1>what it said. UM. Unfortunately, our our survey came came

0:05:52.760 --> 0:05:57.960
<v Speaker 1>across and and said that, uh, there was more potential

0:05:58.000 --> 0:06:01.520
<v Speaker 1>for sub seasonal growth and key en use markets including

0:06:01.560 --> 0:06:05.320
<v Speaker 1>automotives and including non residential construction, which make up about

0:06:05.360 --> 0:06:08.800
<v Speaker 1>six of US steel demand. And I'd also say that

0:06:09.000 --> 0:06:11.920
<v Speaker 1>US distributor daily sheet volumes are down three and a

0:06:11.960 --> 0:06:15.400
<v Speaker 1>half percent here to date. This comes despite modest restocking

0:06:15.440 --> 0:06:18.720
<v Speaker 1>in the second quarter. And and really what drove us

0:06:18.760 --> 0:06:22.240
<v Speaker 1>to change our view is that our distributor context now

0:06:22.320 --> 0:06:25.640
<v Speaker 1>expect below normalized seasonal demand patterns in both the third

0:06:25.680 --> 0:06:28.359
<v Speaker 1>and fourth quarters, which is what really troubled us. And

0:06:28.480 --> 0:06:31.600
<v Speaker 1>some of that which which was new was that we

0:06:31.640 --> 0:06:34.320
<v Speaker 1>are starting to see some some more some some new

0:06:34.920 --> 0:06:38.080
<v Speaker 1>weakness and non residential construction. And you also have had

0:06:38.120 --> 0:06:41.200
<v Speaker 1>the called the lethargy and the in the mining, rail,

0:06:41.200 --> 0:06:46.640
<v Speaker 1>agg and energy UH sectors already. So I think broader

0:06:46.680 --> 0:06:50.120
<v Speaker 1>caution from US in terms of what we're seeing in

0:06:50.120 --> 0:06:54.880
<v Speaker 1>in the US economic indicators as it comes from our

0:06:55.000 --> 0:06:57.800
<v Speaker 1>U steal channel omnia on the demand side. So you're

0:06:57.800 --> 0:07:00.400
<v Speaker 1>saying maybe just underweight the whole sector for a while.

0:07:01.080 --> 0:07:04.680
<v Speaker 1>We are um, I think we're we're telling people to

0:07:04.720 --> 0:07:06.760
<v Speaker 1>take a little bit of money off the table until

0:07:06.800 --> 0:07:10.680
<v Speaker 1>we get uh some more some more visibility on the

0:07:10.720 --> 0:07:13.920
<v Speaker 1>demand front over the next called forty five to sixty days.

0:07:14.560 --> 0:07:17.360
<v Speaker 1>And I think that there's also some natural uncertainty and

0:07:17.360 --> 0:07:19.520
<v Speaker 1>caution in front of the US election. This is a

0:07:19.600 --> 0:07:22.880
<v Speaker 1>very important election for for folks, and and that could

0:07:22.920 --> 0:07:26.200
<v Speaker 1>also lead to some some more subdued capex over the

0:07:26.240 --> 0:07:31.120
<v Speaker 1>next Like I said, um, thirty to sixty days, we've

0:07:31.120 --> 0:07:33.720
<v Speaker 1>got to leave it there. Phil Gibbs is vice president

0:07:33.720 --> 0:07:37.720
<v Speaker 1>and equity research analysts for Medals and Mining for Key

0:07:37.720 --> 0:07:43.080
<v Speaker 1>Bank Capital Markets. Talking about the steel industry, this is Bloomberg.

0:07:45.800 --> 0:07:48.280
<v Speaker 1>Bloomberg taking stock is brought to you you by Time Winner

0:07:48.400 --> 0:07:51.320
<v Speaker 1>Cable Business Class. If your business relies on the phone company,

0:07:51.320 --> 0:07:53.560
<v Speaker 1>you may be getting less than you deserve. Make the

0:07:53.600 --> 0:07:56.960
<v Speaker 1>switch to more speed, more value, and more savings. Visit

0:07:57.080 --> 0:07:59.760
<v Speaker 1>Business dot t WC dot com, slash more