Steel stocks and Tisco

There were reports in WSJ and other publications over the last month that steel prices would go up in the coming months, and hence the outlook for steel stocks is positive. Morgan Stanley upgraded its weighting on steel to attractive from neutral. Goldman however maintained that steel stocks were significantly overbought, having risen 30% from mid-April lows. Turns out that Hurricane Katrina, which stuck Gulf coast late last month, has helped the bulls - with the supply of a few key inputs to the steel production process dislocated, Mittal and Nucor raised prices.

Japanese steel producers like Nippon steel have also raised their prices, but the Chinese producers, who are suffering from significant overcapacity have not. Tisco in India has also raised prices.

I guess the key question for Tisco and other Indian steel producers is - how easy is it to import steel from China? If it is not, and Indian producers go on an expansion spree as Tisco is planning to - they would get hammered if demand turns down. They can definitely accuse Chinese steel producers of dumping and the Chinese government of subsidizing the steel mills through cheap loans (while Tisco pays market prices for its debt), and thus get the Indian government to impose some tarriffs and anti-dumping duties. But Tisco is planning to expand aboard - it bought a steel mill in Singapore and is planning to buy one more. 20% of its revenues now come from abroad. These revenues wouldn't be protected by Indian government tarrifs.