Metals industry left out of stock rally as product prices stay low
One sector that's missing the big run-up in stocks is the metals industry, including U.S. Steel Corp., Alcoa Inc. and others that have a Pittsburgh connection and stocks near 52-week lows.
Low metals prices, excess supply, high fixed costs, a decline in exports, and weakness in the all-important China market continue to form a bleak environment, driving shares of the largest domestically based producers down from highs reached as recently as January.
U.S. Steel's shares closed on Friday at $20.21 after reaching $26 in early January. Its 52-week high was $31.64 on March 19, 2012. Alcoa closed at $8.63, about where it has traded for most of the past 12 months after attaining a high of $10.60 last March.
The environment for both steel and aluminum is affected mostly by low prices for their products, said analyst Charles Bradford of Bradford Research in New York. The strength of the dollar is a factor as well “because it makes foreign companies much more competitive.”
“We are concerned about the direction of the international marketplace at this point,” said David Phelps, president of the American Institute for International Steel in Falls Church, Va., which represents steel importers and backs free trade in steel.
Exports in January compared with January 2012 declined by 14.6 percent, according to the institute.
“Steel exports declined to all regions in the year-to-year comparison as international economic conditions and steel-related demand sagged,” said Phelps.
Anthony B. Rizzuto Jr., an analyst with Cowen Securities in New York, anticipates lower first-quarter profit forecasts. “We expect AK Steel, Nucor and Steel Dynamics to disappoint the market.”
On Thursday, Nucor Corp. of Charlotte, the nation's largest steel producer by sales, cut its first-quarter forecast to about half of actual results of a year ago. It said earnings will range from 20 cents to 25 cents a share compared with a profit of 46 cents last year, because mills did not see their typical pickup in the first three months of the year.
“If Nucor has those problems, other companies will do worse,” said Bradford. “I expect U.S. Steel to lose money; the question is how much.”
Nucor closed at $46.60, down from its 12-month high of $48.23 on Feb. 14.
Despite continued challenges, U.S. Steel CEO John Surma said on Jan. 29 that he expects slightly better demand in the first quarter from makers of cars and other hard goods, as well as from offshore oil rig operators. U.S. Steel is the largest company by production.
Steel prices have remained low, even after price increases were announced last month, Rizzuto said.
In late January, asking prices for hot rolled coil steel were $630 a ton, Rizzuto said. The industry had just announced a $40-$50 per ton price increase and followed that with a similar increase in February. But prices are still about $630, he said. Hot rolled coil is a high-volume product used for auto bodies and major appliances like washing machines.
Weakness in China, the world's biggest customer, could weigh on the U.S. market, said Rizzuto, who has “hold” ratings on AK Steel, U.S. Steel, Nucor, Steel Dynamics and ArcelorMittal, the world's largest producer.
China started the year with production increases, but weak demand led to higher inventories and lower iron ore and steel prices. Chinese steelmakers at first were optimistic about government stimulus projects, but that was followed by doubts that demand would rise.
“A meaningful move lower in Chinese steel prices could prevent further United States price increases as imports become increasingly more economical,” Rizzuto said.
The three largest producers — Nucor; U.S. Steel; and AK Steel Holdings Corp. of Middletown, Ohio — had mixed results in 2012.
U.S. Steel lost $124 million, including a loss of $353 million from the sale of U.S. Steel Serbia. AK Steel lost $1.03 billion as revenue fell 8 percent to $5.93 billion. Nucor earned $504.6 million.
One sign of improvement came on Friday from ArcelorMittal CEO Lakshmi Mittal at an investor presentation. He predicts a reasonable opportunity for a U.S. recovery despite low prices, according to Bradford, who attended the conference in New York.
John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- As historic breakup nears, Alcoa works to redefine its ‘advantage’
- Older workers try to cut back on hours at job
- Batteries key to alternative energy’s success
- Paying pals digitally catches on
- Program lets public service workers be forgiven for student debt
- Asian bug threatens oranges in Florida
- Make green home upgrades pay off
- Black Friday chaos dwindles thanks to earlier deals, online sales
- Travelers contend with increase in ground delays
- Fuel cell standoff slows car technology’s rise in popularity
- Key gets stuck in ignition