Sims, the large metal recycler, out with a large downgrade.

The downgrade is particularly interesting, in light of the below back and forth between mgmt and analyst at the Feb result.

Essentially, it says “the 2H should be better than 1H because the 1H couldn’t have been much worse”.

Well, they managed it; 2H below the 1H, given things (many things, it would seem) such as revenue timing, freight, competition, have all gone south.

There’s value here, to be sure, but not for the faint hearted and certainly some not inconsiderable time to go before a turnaround, it would appear.

China seems set to export more steel (China’s steel exports were up some 30%, as domestic weakness/lack of demand means excess production gets exported abroad, but, those exports are only some 5% of total steel production, meaning they could increase a lot more, as and when China weakens further), both by design (meaning deliberately so) and via a possible RMB devaluation (which will make their exports more competitive).

Then there’s issues around supply, for example, SGM point to the increasing average age of US cars, which means scrap intake (supply) is low (or, at least, heavily competed for by other scrap processors).

We watch, with interest.

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