Commercial Metals Company (CMC), United States Steel Corporation (X): Be Careful With China

Overall, the company is also being affected by lower metal prices, and even its recycling business is struggling. Investors should steer away from Commercial Metals Company (NYSE:CMC) until metal prices begin to recover. The recycling section may be substantially profitable once the overall metals market rebounds.

Coal is directly involved in the steel production

Peabody Energy Corporation (NYSE:BTU) trades with a negative P/E, and its revenues and net income declined in the last quarter according to its most recent earnings report. Revenues fell by 20% to $1.7 billion, and its net income of $173 million swung to a net loss of $23 million.

China is the main importer of coal in the world, and Peabody Energy Corporation (NYSE:BTU) is a main exporter of Coal. I believe the issue is that China has announced that its urbanization program will slowdown in coming quarters due to global economic concerns. Therefore, construction spending is likely to decline, and therefore the demand for coal is likely to be dragged down.

Furthermore, China reported a contraction in manufacturing activities in June. This is also a concern because coal is used as a fuel for electricity production. If manufacturing facilities are consuming less electricity, the demand for coal is likely to decline further. For these reasons, I would recommend investors to avoid investing in this company.

My conclusion

China’s manufacturing activity index showed a slight contraction, impacting the metals sector, particularly steel. Coal is another sector that is observing downward pressure on dimming demands for the commodity. Therefore, investors should steer away from these companies since their exposure to China is large. Further, China has a vast steel and coal surplus that needs to be reduced before these companies are successful exporting their products to China. In brief, I do not recommend owning any of these stocks for the time being.

Robinson Roacho has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Be Careful With China originally appeared on Fool.com is written by Robinson Roacho.

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