| NEW YORK
NEW YORK Feb 13 American steel manufacturer
United States Steel Corp will suffer as China's appetite
for iron ore slows, hedge fund manager Andrew Feldstein said on
Wednesday at an investor conference in New York.
Feldstein, who runs $12.5 billion hedge fund BlueMountain
Capital Management, said China's slowing demand for steel, and
therefore iron ore, would negatively impact a number of steel
and iron ore producers around the world, making them attractive
When a hedge fund manager is short on a stock, he believes
it will fall in value.
"The U.S. steel market is not immune to volatility in the
Asian steel markets," Feldstein said.
Feldstein, speaking at the Harbor Conference in midtown
Manhattan, said United States Steel Corp would be negatively
affected as Chinese demand for the commodity declines. He also
said the company's high pension costs were a cause for concern.
He recommended shorting the company by being long its equity
and short its credit by a ratio of one to six.
Feldstein is not the first large investor to call attention
to the challenges United States Steel faces. Hedge fund manager
David Einhorn, who runs Greenlight Capital, sounded similar
alarm bells at an investment conference last year.
Like Feldstein, Einhorn said the manufacturer's pension
liability and slowing Chinese steel demand would negatively
impact earnings at the company, which at the time had lost money
in nine of the previous 13 quarters.
Feldstein did not restrict his bearishness on the steel
industry to the United States. He also singled out Japanese
steel producer JFE and Australian-based Fortescue
Metals Group as companies on his target list.
He promoted shorting JFE, Japan's second-largest steel
producer, via credit default swaps. Feldstein said the steel
exporter was at risk from increased exports of the commodity out
of neighboring China.
He recommended shorting Fortescue Metals with a combination
of equity and put options.
"Iron ore is very abundant - it's basically dirt in the
ground," Feldstein said. As new iron ore producers increase
supply, thus pushing down prices, Fortescue's business will
suffer, he said.
It was at the Harbor Conference a year ago that Saba Capital
Management founder Boaz Weinstein presented a trade idea based
on a dislocation between two components of a credit derivatives
market. The deviation was being caused by a large buyer who
appeared willing to pay elevated prices for positions in the
That buyer ended up being JPMorgan Chase's Chief
Investment Office and the bet, the now-infamous "whale" trade.
A flurry of public criticism of JPMorgan ensued, eventually
forcing the bank quickly to unwind the CIO's position.
Feldstein's BlueMountain Capital helped with the unwind.
Feldstein also recommended a more simple short bet against
debt that has been scooped up by some of the nation's biggest
He reasoned that mutual funds' large holdings of unsecured
debt, mostly corporate bonds, presented a good short
opportunity. If the economy were to strengthen and interest
rates were to rise, the funds would have to sell their
low-yielding bonds very quickly to keep their returns in line
with benchmarks, pushing bond prices lower.
"The best shorts out there right now are bonds being bought
by mutual funds," Feldstein said.