The Capital Cycle is the official podcast that Marathon Asset Management (the London firm founded in 1986) launched in 2024, hosted by financial historian Edward Chancellor, who interviews Marathon's investors about each Global Investment Review letter — applying the firm's long-term, contrarian "capital cycle" supply-side approach.
Governments are now reshaping global steel trade for national security, turning once-competitive markets into ones dominated by a few protected companies. A case in point: ArcelorMittal, a steel giant already earning higher margins in North America thanks to tariffs, may see similar gains in Europe as new carbon border taxes and import limits arrive. For ordinary investors, the lesson is that policy can create winners even in seemingly declining industries, so state intervention matters as much as supply and demand. However, the author's firm owns the stock, so this view is not neutral. It's a concrete example of how geopolitics changes investment logic.
The author's judgment: the "geopolitical courtesy" premise of free trade has collapsed; state intervention is re-choreographing the capital cycle; deglobalization is recasting the US and European steel markets as oligopolies — long protected domestic champions is the right move now. [Optimistic]
The article opens by rejecting the implicit premise on which Ricardo's theory of comparative advantage rests—"geopolitical good manners"—and cites Bismarck's "blood and iron" line to set the theme. The author reviews how David Ricardo, building on Adam Smith, set out the theory of comparative advantage in 1817. His model "elegantly proved" that two countries, even when one is more efficient at producing all goods, can still benefit mutually through specialization and the division of labor. But the author points out:
"What it quietly assumed, in a footnote invisible to most, was a baseline of geopolitical good manners underpinning frictionless international trade."
In other words: "In a footnote invisible to most, it quietly assumed a baseline of geopolitical good manners underpinning frictionless international trade."
The author cites the observation of American historian Will Durant—that in thousands of years of recorded history, peaceful years have been few and far between—to question how "especially brave" Ricardo's bet looks, and to remind readers that trade itself can be "peacefully" weaponized.
The author argues that the orthodox dynamics of the capital cycle still hold, but the state is becoming the key variable that rearranges the rhythm of the cycle. The capital cycle framework relies on supply-side analysis to forecast future returns and is therefore "style-agnostic." It covers three types of opportunities: traditional cyclical stocks benefiting from industry consolidation; companies earning excess returns through sustainable entry barriers; and a special case—where society deems food security, critical infrastructure, defense capability, or the preservation of sovereignty more important than maximizing economic profit in peacetime. The author writes:
"The orthodox capital cycle dynamics ... are not abandoned but rearranged by the state."
In other words: "The orthodox capital cycle dynamics ... are not abandoned but rearranged by the state."
This means the traditional rhythm of the cycle—high returns attract new capital, new capital crushes returns, capital exits, returns repair, capital returns—still exists, but its tempo is altered by government decisions.
The author takes ArcelorMittal (ArcelorMittal, MT)—a holding of Marathon Capital—as the core case study, dissecting its fundamental data and historical background in detail.
| Dimension | Data/Fact |
|---|---|
| Annual output | Approximately 55 million tonnes (one of the world's largest producers) |
| Iron ore self-sufficiency | Vertically integrated mines cover ~72% of raw material needs (2025 annual report) |
| Corporate origins | 2006 hostile takeover: Mittal Steel (low-cost consolidator) + Arcelor (high-cost specialty steel producer) |
| Business footprint | Emerging markets: Brazil, India, South Africa, Ukraine; Western Europe: France, Belgium, Spain, Germany |
| Cost structure | Typical cyclical stock, capital-intensive, with a high proportion of fixed costs |
| Profit sensitivity | Cash gross margin per tonne is "mercilessly sensitive" to capacity utilization and steel prices |
In the historical background section, the author describes the arc of the steel industry's rise and fall: China's rapid industrialization brought a "golden age of steelmaking," with China eventually accounting for half of global steel consumption—a period later dubbed the "commodity supercycle." But the good times did not last. The 2008 global financial crisis crushed demand, while China's simultaneous domestic capacity buildout ("building steel mills to build steel mills") created structural overcapacity that became "unmanageable" as China's property market entered a downturn.
National priorities are replacing the logic of pure profit maximization, and strategic industries such as steel will see investment opportunities that go beyond market supply-demand fundamentals. When sovereign issues—food security, defense, critical infrastructure—take precedence over economic profit maximization, governments will actively reshape the capital cycle. For industries like steel, this means capacity exits may be accelerated or delayed by political will, and the industry's return landscape will shift accordingly. The author uses ArcelorMittal—a global giant with a high degree of vertical integration spanning emerging and developed markets—as the vehicle to illustrate the concrete investment expression of this logic.
Note on Institutional Perspective Bias: The article presents ArcelorMittal as a "textbook case," but the company itself is a holding of the author's institution (Marathon). The entire text carries a clear narrative tint from the holder's perspective—readers should note that the author's argument that state intervention will benefit the steel industry aligns with the direction of his position.
Continuing from the above, China's export outlet for excess capacity lies overseas, and Western markets have become its "dumping ground."
The article points out that on a purely economic level, neither ArcelorMittal's (MT) European nor North American operations can compete with Chinese steel mills—even after accounting for additional transportation costs. Its Indian and Brazilian operations sit more comfortably on the cost curve thanks to cheaper labor, cheaper energy, and captive iron ore, but Europe and North America are not competitive. Whether this disadvantage stems from China's genuine cost advantages or long-term state subsidies remains a matter of debate, in the author's view. One side would argue that China's energy is cheaper and more abundant; but until credible signs emerge that subsidies are being withdrawn, the answer is a secondary question. The author's original words: "A free-market absolutist would be inclined to write the Western steel industry off. That analysis would be shortsighted, especially in times of rising uncertainty" — meaning: "A free-market absolutist would tend to write off the Western steel industry; such an analysis would be shortsighted, especially in times of rising uncertainty." He adds that such an analysis implicitly prices at zero the loss of self-sufficiency in domestic steel capacity.
The turning point came in 2018: Washington determined that imported steel was a national security issue, because steel is a critical material for shipbuilding, tanks, aircraft, missiles, railways, ports, power grids, and pipelines, and the US needed higher utilization rates to keep the industry alive. Section 232 tariffs raised domestic prices, doing exactly that, and the framework survived under presidents of both parties, reflecting bipartisan consensus. As a result, MT's North American segment averaged roughly $180 of EBITDA per ton from 2019 to 2025, above the group average and above its own historical range.
Brussels tried to replicate the US outcome with different measures, but the 2019 safeguard of "progressively tightening quotas + 25% over-quota tariffs" mainly benefited the very foreign steel mills it restricted. In 2026, the EU switches to a combined approach: the CBAM carbon border tax, quotas halved to 18.3 million tons, and over-quota tariffs doubled to 50%. The article notes with irony that, as a policy victory, the safeguard mainly let the foreign steel mills it sought to restrain "win"—import share kept rising as demand weakened while domestic output contracted. ThyssenKrupp announced 11,000 job cuts, and ArcelorMittal idled part of its capacity in continental Europe. Unconstrained import competition has become a luxury Europe cannot afford.
2026 therefore becomes the year Europe's steel policy is reactivated: at the start of the year, the EU launches the Carbon Border Adjustment Mechanism (CBAM), which taxes the embedded CO₂ emissions of imported steel, creating a level playing field for domestic producers that already bear EU ETS costs; from July 1, 2026, the duty-free import quota is halved to 18.3 million tons, with the aim of compressing import share to roughly 15%, while over-quota tariffs double to 50%. The author says the upside opportunity is enormous and "the arithmetic is straightforward":
| Metric | MT North America | MT Europe |
|---|---|---|
| 2024 shipments | Roughly 1/3 of Europe's | Benchmark |
| Contribution to group profit | More | Less |
Even though the steel capital cycle is not within management's control, the company still has room to act on its own: the Mittal family still runs the company and holds nearly 45% of its shares, acting as aligned operators rather than short-sighted agents. Since 2020, ArcelorMittal has spent over $11 billion buying back and canceling 38% of its shares, delivering 33% per-share accretion to patient shareholders while the share price remained persistently below its asset replacement cost. The author describes that when Chinese steel mills flooded the market and the share price languished, management cut investment and redirected cash internally, buying back stock at prices far below the replacement cost of its production footprint—by the company's own estimate, the most attractive investment available to it at the time. The external backdrop was that the OECD then estimated global excess capacity at nearly 700 million tons, roughly 40% above global steel demand.
The article's core inference is that when intervention is sustainable, structural, and rational, it can create profits for investors; deglobalization and the retreat from the doctrines of free trade and comparative advantage have reshaped the US and European steel industry's capital cycle from "global competition + excess supply" into an "oligopolistic market with capacity discipline." Intervention can take the form of tariffs, quotas, carbon borders, security reviews, or pure political necessity, and can alter economic profitability in either direction relative to what a free market would otherwise produce. Although ArcelorMittal's European profitability can expand under unchanged Chinese supply, the author stresses that the implications go beyond a single case. The article concludes: "Whilst Ricardo would shudder at the loss of economic efficiency, a pragmatic realist like Bismarck would have been more inclined to co-invest" — meaning: "While Ricardo would shudder at the loss of economic efficiency, a pragmatic realist like Bismarck would be more inclined to co-invest." Here, the author uses Ricardo to refer to free-trade theory and Bismarck to refer to geopolitical reality (echoing the article's title, "Iron and Blood").
The article's implicit investment logic is to treat policy intervention as the dominant variable in the capital cycle and go long protected domestic champions in industries where intervention is sustainable. Applied to ArcelorMittal, the bullish chain is — the North American Section 232 tariff dividend has already materialized as above-average EBITDA of $180/ton; if Europe's 2026 CBAM and quota halving are implemented properly, the European segment could replicate a North American-style profit recovery; combined with management buybacks demonstrating capital allocation discipline. The article does not explicitly state any specific buy/sell action or target price. Note that the author is an advocate of the policy-intervention benefit thesis and devotes scant attention to the efficiency losses of protectionism, consumer prices, or trade retaliation risks; readers should recognize this as a bull-case narrative, not a neutral analysis.
| Instrument | Direction | Author's stance in one sentence | Key Data |
|---|---|---|---|
| ArcelorMittal (MT) | Hold / Watch | Core example of the full report and a holding of the author's institution; positive on North American benefits under policy intervention and the 2026 European repair, with no specific buy/sell action stated | Annual production of approximately 55 million tonnes; iron ore self-sufficiency rate of 72%; North American average EBITDA per tonne of approximately $180 from 2019 to 2025; $11 billion in buybacks since 2020 and 38% of shares cancelled; the Mittal family holds nearly 45% |
| ThyssenKrupp | Not specified | Mentioned as a victim of the failure of the EU's first round of protective policies; the author gives no investment assessment | Announced 11,000 job cuts |