Sims Group Limited

Despite our repeated warnings, steel stocks continue to rise, with metal recycler Sims Group up 7% since issue 138/Oct 03 (Sell-$10.81). In that review we highlighted the Chinese State Development and Reform Commission report that stated a 'huge amount of steel-making capacity was to come into production in the next three years' as a point against the argument that China will provide endless growth for Australian metals businesses. In the six months since that review, those new plants have simply come closer to production. Sometime in the next five years China may well become a steel and metals exporter rather than importer. When that happens, you can bet that the annual reports of Australian companies involved in this industry will contain fewer references to China than they do now. And metal recycler like Sims will get caught up. Given a yield of less than 5%, we just don't think there's enough potential reward for the risks investors are willingly, or unwillingly, now taking. SELL.