There is a very strong correlation between Sims Metal Management’s buy and sell prices and the prices of iron ore and coking coal, and ferrous prices on the London Metals Exchange, said Sims’ managing director and chief executive officer, Galdino Claro, at the company’s annual general meeting.
The company expects the first half result to be "materially lower" than the prior corresponding first half. This earnings warning comes soon after the FY19 results where, Credit Suisse points out, management had highlighted macro headwinds stemming from the US/China trade war, low Turkish steel demand and soft automotive demand.
Citi notes the stock has pulled back substantially and sector sentiment remains weak amid falling steel/scrap prices and minimal buying interest. Still, the broker suspects a market nadir may be close.
The re-starting of US blast furnace capacity has caused a slump in US steel prices and put the steel market into surplus, constraining the price that US EAF steelmakers can pay for scrap. Recent tariff reductions have made this worse.