InvestorQ : What does it mean when they talk about inventory squeeze on metals? Are valuations of metal stocks also stretched?
Aashna Tripathi made post

What does it mean when they talk about inventory squeeze on metals? Are valuations of metal stocks also stretched?

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Mahima Roy answered.
2 weeks ago
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The report by Credit Suisse has raised two concerns. The first concern about metals is that the inventory squeeze may be ending. It was an extreme kind of inventory cycle. ESG regulations in China had cut supply as fresh steel capacities were on hold. Hence steel users scrambled to stack up on inventory. This offered a boost to the steel stocks. This supply squeeze may have played out and they see a lot of supply of steel back at higher prices.

The second concern apart from the end of inventory squeeze is valuations. There are 2 things to note. Price to book value or P/BV relative to market is at a 10-year high limiting further upsides. Secondly, the aluminium / steel price ratio is at a 20-year low. It also hints at a likely correction in steel prices and so in steel stocks too. Clearly, input stocks that had a phenomenal commodity driven run are giving second thoughts to the steel investors.

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