High Steel Prices and “Peak Everything”

by BWK ~ May 19, 2008

Yes, we are on the cusp of Peak Everything…

The rising cost of steel is at the heart of much capital cost inflation
around the world. It affects all energy projects, plus all other
capital-creation efforts. It’s a long-term theme in my view of things. It
means that capital creation will become much more difficult, in an era when
it is of utmost importance. Central Planning, anyone? Maybe we all ought
to re-read Vladimir Putin’s PhD Thesis — much of which he plagiarized — on
the subject of central planning.

The vertically integrated steel companies will survive, and likely prosper.
Heck, a good steel millll will become a national asset, like Yellowstone
Park or Gracieland. The “tier” metals-players, who bought into the niche
theory, will struggle to find suppliers — let alone just-in-time suppliers
(Ha!!!) — and to pass through costs to the customers hemorrhaging from
sticker shock.

Close to home, in the 1990s all the investment bankers told US Steel to sell
off those “non-performing assets” like the coal reserves and iron ore
facilities. Former CEO Tom Usher took unholy hell from the alleged
“financial” community for his stubborn refusal to dismember the firm that
Andrew Carnegie built. After all, we all know how smart those Wall Street
guys are, right?? Now in hindsight, Usher is a genius of the proportions of
Albert Einstein, or at least of Leslie Groves who weaponized Einstein’s
bright idea. (And I knew Tom Usher when he used to eat a humble club
sandwich on Pullman Bread for lunch at the Duquesne Club.) Coal? Iron ore?
Dolomite? “Non-performing assets” my ass. It all depends on your time
frame. Usher was thinking of the future, and avoided selling good natural
resources for bad US dollars. US Steel will be around for another century
unless some idiot comes along to screw it all up.

The article mentioned below makes good reference to the Dept of Energy’s
Hirsch Report (2005). As a nation, we are just plain blowing our time
window for advance mitigation. There are endless tasks just to begin, let
alone to accomplish. One of the big efforts in the advance period has to be
to educate the people about the severity of the crap-train that is coming
down the tracks. On that, the US media gets an “F-” grade.

Instead, we have the sordid scene of GW Bush flying the Big Blue Jet to
Saudi, hat-in-hand like Oliver Twist, asking for “more please.” And the
Saudis don’t even offer sympathy. The first answer is “No.” The second
answer is, “Oh by the way, we increased output by 300,000 barrels back
on May 10, in response to requests from our customers.” So take that,
Mr. President of the US of A. And so much for the 75-year special
relationship. (Indeed. Beware such insult, King Abdullah. Heavy is
the head that wears the crown.)

Still, how unseemly this is. Not only is the US losing time, we are losing
face. I don’t know what is worse.

By comparison, it takes a 7.9 magnitude earthquake, with 50,000+ dead before
China even begins to think of allowing “foreigners” into the country with
body-sniffing dogs just as a token of humanitarian aid. And the US sends
its president to beg from those Arabian devils when gasoline costs $3.75 per
gallon. Boo-hoo. This is a nation of whiners.

Meanwhile, we in the US won’t drill offshore. We won’t drill in Alaska.
Forget about drilling ANWR. And the Dept of Interior just issued a “10 year
moratorium” on new leasing adjacent to the National Petroleum Reserve near
the North Slope. And it declared polar bears to be an “endangered species.”
(In China, they eat bears.) Thanks, guys. We sure dodged the bullet on
that one, eh? For some weird reason (CO2, they say) we won’t do
coal-to-oil — not even a pilot plant to see if the technology works. We
have nothing resembling a national passenger rail system, while the airline
system flies towards its own version of Silent Spring. (Hey, if the jets
leave the skies, how will all the cocaine get from South America to the
streets of West Hollywood and Greenwich Village?)

Back on the home front we have the Great Senator Gasbag from Oz, Chuckie
Shumer, threatening to block arms sales to Saudi if they don’t sell us more
oil (which we in the US cannot refine with the limited refining capacity we
have.) As if the Russians or Western Euros would not leap at the chance to
sell guns to the Wahhabis? Really, kids.

And waiting in the wings we have………. Sen. Fall-Guy from Arizona. His
job is to go out in the ring and make it look like a good fight, but take
the dive in the 9th round. (And if he doesn’t take the dive, the referees
will look the other way when he gets the rabbit-punch.) The media and
deep-backgrounders have already identified the next POTUS, a true
Man-of-the-People (with his prep school preparation, Columbia undergrad and
Harvard Law School pedigree), the next-great-thing, the guy offering Hope
who is a mind-bending mix of paper-thin resume and blind ambition in a
hurry. Oh, and don’t worry about all his radical friends and that
Euro-Marxist crap that he utters in his unguarded moments. If he does not
understand the concept of capital gains, well, it’s a small price to pay for
such a Great Leap Forward.

Bill Bonner has it right. Buy a ranch. Go up into the Andes. Get so far
away that even Google Earth can’t find you. Grow cows Then eat them. Wait
it out for a couple of generations. Can it get any worse? Well, probably
yes.

** Here is the article that I’m referring to…

Best, BWK

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Additional Resources:
High Steel Prices and “Peak Everything”
Just Like Building the Alaska Pipeline - Underwater
Oil Strikes Another High…
Peak Food!
Scarcity Is Expensive - Energy and Commodities