The shale gas revolution has taken America’s energy needs by storm – no question about that. We have ourselves a true game-changer in every sense of the compound word.
But having unlocked Pandora’s box, the full impact of the revolution has spread like wildfire to other industries as well.
We witnessed the resurgence of chemical companies where the impact of shale gas has decreased the cost of both raw materials and energy.
From fertilizer to ethylene production used in a variety of consumer goods, the US chemical sector owes a huge debt of gratitude to it.
Utilities are also seeing a healthier bottom line.
It’s estimated that American residential consumers will save about $75 billion in 2013 with lower natural gas prices for electricity.
Other manufacturers have also seen their costs slashed as well.
The likes of aluminum and glass producers are basking in the glow of higher margins for their products due to energy savings.
But while the success of those industries have been impressive, they’re not nearly as enticing as the one industry that’s been given a new lease on life after years of steady decline.
I believe this comeback story could be one of the biggest, most profitable plays of 2013.
And the best part is, the markets have been slow to react to this resurgence – creating a window of opportunity for investors right now.
What am I talking about here?
Better get your welcome mats ready…
It’s the return of American steel.
American Steel: The Dawn of a New Day
If you ask most steel producers, the years following the recession have been downright awful.
Domestic steelmakers have been facing weak domestic demand, depressed prices and increased Chinese competition. Add to that an elevated iron ore price, and profit margins of capital-intensive steel mills in the US have been effectively wiped out in recent years.
According to Bloomberg, while global steel output has grown by 14 percent since 2008…US production has shrunk 3.4 percent.
Yet despite our steel industry downturn, there was a silver lining…
It was the shale gas revolution.
Now with a supply glut keeping gas prices at record lows, it’s given steelmakers hope that their industry can once again return to its former glory.
And they’re not wasting any time.
Taking advantage of a cheaper energy source, producers are making the switch to natural gas in favor of coal to purify iron ore – the main ingredient used in steel.
This new phase in the steelmaking process utilizes facilities known as direct reduced iron (DRI) plants.
It may sound revolutionary, but DRI has been around since the 1980s.
“That [DRI] technology has been around 30 years, but for 29 years gas prices in the US were so high that the technology was not economical,” said Michelle Applebaum, managing partner at consulting firm Steel Market Intelligence in Chicago.
“This is how steel will be built moving forward,” he adds.
At current prices, it’s estimated that the technique will allow plants to produce steel-grade iron for about $324 per ton, which is 20 percent cheaper than using traditional coal blast furnace.
Of course, there’s always the likelihood that gas prices will rise if exports pick up or domestic demand increases.
Yet some analysts predict that even if natural gas were to double to $8/Tcf, steelmaking via DRI will still be cheaper than cooking with coal.
As such, the momentum to adopt this process en masse is building.
So far, at least five DRI plants are either under construction or being planned in the US, including a $750 million Louisiana project by Nucor Corp., the largest US steelmaker by market cap.
The cost-effective standard is being so widely accepted that manufacturers from across the globe are coming to the US to build their facilities as well. Firms from Austria, Australia and India are all in the planning stages for similar plants stateside.
And what’s more, this comes at a time when the world’s largest consumer of steel is making a comeback.
Steel Demand To Rise
After sliding for seven straight quarters, China’s economic growth is beginning to show signs of stability.
Not surprisingly, at the forefront of the Chinese recovery is construction.
Analysts are anticipating record levels of iron ore imports as steel demand in China is expected to skyrocket in 2013 – which US producers could potentially take advantage of.
The rising economic activity already has one global financial powerhouse salivating over steel.
On January 2nd, analysts at Credit Suisse made a bullish call on US Steel (NYSE:X), upgrading its stock from Neutral to Outperform.
While the bank may have specifically identified US Steel as a buy, it cites broader industry trends as reasons for their call.
Credit Suisse expects a steel price recovery in 2013 through 2014, as well as an increase in auto demand to push shares higher.
I couldn’t agree more…and I would expect other US steelmakers follow suit in the months ahead.
The bottom line is: steel is going to breakout in 2013, and investors who make the move are going to make a mint.
I can’t think of a better way to kick off the New Year.
for Top Stock Millionaire