During commissioning ceremony of the new facility, the Russian Prime Minister was accompanied by Grigory Rapota, the Plenipotentiary Representative of the President of the Russian Federation in Volga Federal Region; Alexander Volkov, the President of Udmurtia Republic; Denis Manturov, Deputy Minister of Industry and Trade of the Russian Federation; Igor Zyuzin, the Chairman of the Board of Directors of Mechel OAO; and Valery Moiseyev, Managing Director of Izhstal OAO.

Valery Moiseyev, Managing Director of Izhstal OAO, informed the Prime Minister Vladimir Putin about ongoing modernization of the plant, its current capacity utilization and the prospects for enterprise’s development.

Then Vladimir Putin launched the new electric steelmaking complex that consists of an electric arc furnace with a capacity of 40 tonnes and a continuous slab caster. The facility will have an annual slab production capability of more than 300,000 tonnes. In addition to the electric arc furnace and continuous slab caster, a ladle metallurgy facility will be commissioned as part of the same process chain. Commissioning of the new facility will mark complete transition of Izhstal OAO to electric furnace steelmaking. This is one of the key stages for the plant’s large-scale technical upgrade program, which provides for renovation of steelmaking complex and modernization of steel rolling facilities of Izhstal OAO.

Project investments have totaled 5.8bn rubles ($195.6m).

Igor Zyuzin, Chairman of the Board of Directors of Mechel OAO, commented, “Technical modernization of the plant will result in more effective production, reduced costs, compliance with global quality standards and will allow us to satisfy the demand for specialty steel grades by the automobile, aircraft, aerospace and construction industries. Of no less importance for us is the social dimension of this project: technical upgrade of the plant will eventually mean more taxes paid to the budgets of all levels, new jobs creation, compliance with the latest safety requirements, and significant reduction of air emissions in the city of Izhevsk.”

Mechel is one of the leading Russian companies. Its business includes four segments: mining, steel, ferroalloy and power. Mechel unites producers of coal, iron ore concentrate, steel, rolled products, ferroalloys, hardware, heat and electric power. Mechel products are marketed domestically and internationally.

]]> http://alliancesteeltrading.com/?feed=rss2&p=1032 0 http://alliancesteeltrading.com/?p=1024 http://alliancesteeltrading.com/?p=1024#comments Sat, 07 Aug 2010 17:11:38 +0000 Peers http://alliancesteeltrading.com/?p=1024 Miner Plans to Boost Capital Spending in Australia, Africa;

CEO Says He Is Committed to Quarterly Iron-Ore Pricing

Buoyed by the rising price of iron ore early this year, Rio Tinto PLC’s first-half profit more than tripled, and the big mining company said it plans to boost spending to increase output in both Australia and Africa.

Rio Tinto reported earnings of $5.85 billion for the six months ended June 30, up from $1.62 billion a year earlier. Sales rose 37% to $26.77 billion from $19.52 billion.

But the strong spot prices of iron ore that aided Rio Tinto in the first half began to soften about a month ago, and have fallen roughly 30% to 35% since the beginning of the year. The company, the world’s No. 3 miner by output, derives about 70% of its profit from iron ore.

The world’s biggest iron-ore producers—Anglo-Australian Rio Tinto, Melbourne-based BHP Billiton and Brazil’s Vale SA—have benefited in recent months from selling iron ore under a quarterly pricing system, rather than at prices set by annual contracts. The aim is in part to better match iron-ore output with demand.

Spot market prices during the early months of 2010 were strong due to robust demand from the world’s steelmakers but have been on a steady decline as growth and steel production have slowed in China and the rest of the world. Iron ore now is selling for about $140 a metric ton, compared with about $180 a metric ton in April.

Tom Albanese, chief executive officer of Rio Tinto, said in an interview that prices have come up in recent weeks but still aren’t as high as earlier this year. “We have seen spot prices drop, but they have recovered a bit for the past couple weeks,” he said.

Mr. Albanese said he is committed to prices set on a quarterly basis. “I’d like to see this work; it is something that is needed” because, he said, there will be less guessing about iron-ore prices and less tension between steelmakers and miners during price negotiations.

Mr. Albanese said he is less focused on short-term price fluctuations than on long-term prospects, which is why the company said it would boost investment in existing mines in Africa and Australia.

“We have a couple of phases of expansion,” he said. “One should happen by the end of the year and another by the end of next year.”

By 2016, Rio Tinto wants to boost it iron-ore capacity by about 50% to 330 million metric tons. It is also closely watching production levels at Chinese steel mills.

China is the world’s largest steel producer and accounts for the vast majority of seaborne iron-ore consumption. Last week, Vale, the world’s second-largest miner by production, said that steel output and iron-ore demand in China was slowing, and that it expected that trend to continue in the third quarter. Vale reported a net profit of $3.7 billion for the second quarter, up from $790 million a year earlier.

Investment in steel-intensive infrastructure and commercial and residential construction in China has slowed, stirring concerns about excess steel capacity and falling steel and iron-ore prices. China also canceled export-tax rebates on some steel products to avoid the need for imports and help stabilize prices. But that, too, has compounded the excess-capacity concerns.

Despite the iron-ore price bump of the past few days to $140 a metric ton from around $130 a metric ton, the price is expected to fall for the rest of 2010. “I think the price of iron ore could fall to as low as $100 by the end of the year,” said Alex Tonks, commodity strategist for Merrill Lynch in Australia.

Even at that low level, though, Mr. Tonks said that the price of iron ore is still comparatively strong. He also said that demand remains strong enough to consume current production by the world’s top miners and that the miners can remain profitable at prices of $100 a metric ton. “Vale, BHP and Rio will continue to sell every ton of iron ore they produce because the demand is still there.”

BHP CEO Marius Kloppers pushed to get rid of the annual benchmark pricing, and other mining companies followed. He said the move would help keep production in line with demand, and offer more transparency. The Chinese Iron and Steel Association is complaining about the current quarterly pricing system, saying steelmakers are at a disadvantage and that miners work in concert to keep iron-ore prices artificially high. Nippon Steel, the world’s fourth-largest steelmaker, said that quarterly pricing is not working smoothly enough and has complained that the volatility in iron-ore prices prevented the company from accurately being able to price its own steel products.

For decades, miners negotiated every April with steelmakers to set a price for each ton of iron ore sold, and both sides would stick to that price for a year, no matter the actual demand.

By Robert Guy Matthews

WSJ 8/6/10

Japan’s Nikkei Stock Average shed 0.2% to 9278.83, but Hong Kong’s Hang Seng Index advanced 1.1% to 20487.23, and China’s Shanghai Composite rose 0.3% to 2535.39, stretching its winning run into a third straight session. Indonesia shares ended up 0.6% at a record high of 3013.40 as local institutional funds bought commodity- and consumer-related blue chips in anticipation of strong first-half earnings.

Steel shares around the region rallied on news China is aiming to slash the number of steel makers in the country by about 75%. Hopes that spot prices had reached a bottom also supported prices, with Deutsche Bank analysts writing that about 40 medium to small mills in China had raised their prices modestly in the past two days.

“With steel spot prices bottoming out, we believe the short-term market sentiment will be positive, supported by the spot steel price hikes, large-scale production cuts and a government crackdown on overcapacity/high energy-consumption producers,” Deutsche Bank analysts said.

Angang Steel Co. surged 7.9% and Maanshan Iron & Steel Co. jumped 7.5% in Hong Kong, while Baoshan Iron & Steel Co. rose 1.1% and Wuhan Iron & Steel Co. advanced 1.3% in Shanghai. Posco gained 2.4% in Seoul, and Tata Steel climbed 4% in Mumbai trading.

Although Japanese technology shares rose in early trading in the wake of strong fiscal third-quarter earnings from Apple, worries about the yen’s strength erased some of those gains. Elpida Memory tumbled 3.5%.

The yen’s strength hurt other exporters. Nissan Motor Co. dropped 1%.

Nomura Holdings fell 3.8% and Daiwa Securities Group slid 3.5%, hurt by U.S. financial giant Goldman Sachs Group’s weaker-than-estimated results. Investors were also concerned the two financial companies may need to raise capital.

LG Chem rose 4.4% in Seoul after the company reported record second-quarter earnings Tuesday that beat estimates, driven by strong sales of petrochemicals and rechargeable batteries.

Material stocks were generally higher around the region after the rebound on Wall Street and on an increase in crude-oil prices.

In Sydney, BHP Billiton advanced 1.2% after reporting a strong performance in its fourth quarter, with production of iron ore and metallurgical coal both up 16% on the year. Chinese oil company Cnooc climbed 2.4%, while Aluminum Corp. of China advanced 3.2% in Hong Kong.

In other market news, Cambodia said it would postpone the opening of its stock market to July next year due to technical issues and global economic uncertainty. This was the second delay for the new market; in December, officials said Cambodia’s stock market would open by the end of this year after initially targeting it to begin operating in 2009.

By Colin Ng and Leslie Shaffer

The Wall Street Journal

India is the world’s third-largest exporter of iron-ore, mostly to China, and 70%-80% of its 106 million tons of exports last fiscal year were fines, or low-grade ore.

“Banning iron-ore exports may cause environmental hazards,” Mr. Handique said, noting that unused low-grade ore may contaminate fresh water sources.

“If the steel industry gets the technology to use the entire low-grade ore, the government may rethink its export policy. But right now, there is no case of banning iron-ore exports,” Mr. Handique said.

India’s steel ministry has been lobbying the government to either raise the export tax on iron-ore or completely ban exports in order to preserve the key raw material for the country’s expanding steel industry.

In April, the Indian government raised export taxes on iron-ore lumps to 15% from 10% to ensure sufficient supply for the domestic steel industry. The export tax on iron-ore fines was kept unchanged at 5%.

The steel ministry has been seeking a uniform 20% tax on exports of all grades of iron-ore, while Steel Secretary Atul Chaturvedi was reported last week as saying he favored a complete ban on iron-ore exports.

“We are not averse to a hike in export duty but have not yet applied our minds on what should be the quantum of increase,” Mr. Handique said.

The government reviews its iron-ore export policy every three years, he said.

India, the world’s fifth-largest steel producer, aims to raise steel production to 124 million tons by December 2012 from 72 million tons currently.

Global steel makers such as ArcelorMittal and South Korea’s Posco, as well as domestic companies like Tata Steel, have drawn up expansion plans that bank on India’s iron-ore reserves of around 25 billion metric tons.

Separately, Mr. Handique said a new mining law that aims to help foreign and domestic investors will likely be debated in Parliament in December.

The new Mines and Minerals (Development and Regulation) Bill includes provisions such as seamless transfer of leases from the stage of prospecting to mining, as well as increasing the mining area under leases.

By Rajesh Roy

The Wall Street Journal

The deal is part of Beijing’s plans to consolidate the sector by creating three large steel makers with an annual output of 50 million metric tons, and several smaller producers with an annual output of 30 million tons through a series of mergers and acquisitions.

The purchase of the Tonghua Iron stake will boost Shougang’s annual output and make it more competitive in China’s northeast, the country’s traditional industrial base, where its rivals include China’s fourth-largest steelmaker, Anshan Iron & Steel Group. Shougang, which is based in Hebei province, produced 17.3 million metric tons of steel last year and plans to raise that figure to 25 million tons in 2010, according to the company’s website. Tonghua Iron, which is owned by the Jilin municipal government, has an annual capacity of 6 million tons of steel.

Shougang plans to upgrade Tonghua Iron’s technology and eliminate some of its outdated facilities, said the official.

Privately owned Beijing Jianlong Heavy Industry Group Co. had planned to take over Tonghua Iron last year, but the plan was shelved after Chen Guojun, the Jianlong-appointed general manager of Tonghua Iron, was killed during a protest by Tonghua Iron workers who opposed the acquisition.

According to a statement from the municipal government, China Huarong Asset Management Corp. will have a 10.33% stake in Tonghua Iron after the stake purchase, the Jilin government 10%, with the remaining 2.1% held by minority shareholders.

By Yajun Zhang

Wall Street Journal

However, the steelmaker, Anshan Iron & Steel Group Corp., sought to play down the dispute, which could exacerbate trade tensions between the U.S. and China.

In a letter dated Friday, 50 members of the Congressional Steel Caucus, which supports the American steel industry, wrote to U.S. Treasury Secretary Timothy Geithner urging the Committee on Foreign Investment in the U.S. to “thoroughly investigate” Anshan Iron’s U.S. joint-venture plans.

In May, the Chinese company said it planned to invest in a Mississippi-based steel plant owned by privately held Steel Development Co., as part of its ambitions to sell products directly to the U.S. market.

CFIUS, which is chaired by the Treasury secretary, reviews foreign investment deals to ensure they won’t pose a threat to national security. The committee can recommend that the U.S. president block a transaction.

The lawmakers’ concerns could most immediately effect a steel plant that SDCO has built in Amory, Miss., which is scheduled to begin production this year.

“We are researching the situation and mulling how to deal with it,” said Li Jiangyu, secretary to the president of Anshan Iron.

Mr. Li said the lawmakers’ protest shouldn’t be a major hurdle to the deal because Anshan Iron, also known as Ansteel and Angang, signed the agreement on its investment plan in line with the requirements of the U.S. government for its domestic stimulus program.

He said the deal isn’t a “complicated case,” as it doesn’t involve resources or equity control. “No government is involved yet,” Mr. Li said. He added that the letter expresses an opinion from “a nongovernment organization” with a different perspective.

Meanwhile, the more-vocal China Iron and Steel Association said the U.S. should keep a “proper attitude” toward the effects of globalization. CISA deputy secretary-general Qi Xiangdong said the deal is a commercial matter, and that any government-backed interference would indicate protectionism.

“A market-economy country like the U.S. shouldn’t make administrative intervention to corporate behavior,” Mr. Qi said. “Western countries still have a stereotype of [Chinese] state-owned enterprises. …Anshan Iron is a listed company, and not a Chinese state-owned enterprise in the traditional sense.”

Mr. Qi said that no matter how the Anshan deal concludes, China will still invest abroad. “The West should have proper attitude to the global trade and globalization of the world economy,” he said.

Anshan Iron is one of 125 state-owned enterprises directly managed by the central government through the state-owned Assets Supervision and Administration Commission. Anshan Iron owns 67% of Angang Steel Co., which is listed on the Shenzhen Stock Exchange. Angang Steel also has Hong Kong-listed shares and American depositary receipts.

Zhang Xiaogang, the president of both the parent and listed company, was a former CISA chief. Mr. Zhang also is the party secretary of the parent company.

Anshan Iron’s Mr. Li said that Mr. Zhang will travel to New York on Tuesday to attend a World Steel Association meeting. He didn’t say if company executives would discuss its investment in the U.S. with American authorities.

In their letter, the U.S. lawmakers said they were “deeply concerned” that Anshan Iron’s “direct investment in an American steel company threatens American jobs and our national security. We believe that this investment allows the full force and financing of the Chinese government to exploit the American steel market from American soil.”

The letter said that Anshan could easily obtain subsidized financing because of its close ties with the Chinese government, which would let the Chinese steelmaker “distort the American market and force American steelworkers to compete against a blank check.”

The lawmakers also raised the concern that Anshan could gain access to new steel-production technologies and information regarding American national-security infrastructure projects.

In the first six months of this year, the U.S. Commerce Department has imposed countervailing or anti-dumping duties on at least five kinds of Chinese-made steel products, including various types of steel wire and pipes.

In 2005, an attempt by state-controlled Chinese oil company Cnooc Ltd. to buy California-based Unocal Corp. fell apart after U.S. lawmakers raised concerns about the ties between China’s government and businesses.

By Yajun Zhang

Wall Street Journal

Exhibit A comes from the Baltic Dry Index, which could use a drink after June’s performance.

Shipbrokers say the plunge, which more than halved capesize-vessel freight rates in a month, is due to faltering demand for iron ore from Chinese steel mills, as they grapple with a tougher export environment as well as policy moves to rein excess construction.

Capesize vessels are the supersized carriers that account for a third of international seaborne trade. Their fortunes lie in the business of the world’s top three iron-ore miners, BHP Billiton, Rio Tinto and Vale, which together control three-quarters of seaborne iron-ore supply.

The trio’s largest customer is China, where months of boycott threats in an attempt to control prices haven’t succeeded quite as well as simply getting serious about cleaning up and slimming down the country’s bloated domestic steel sector.

Since April, Chinese steelmakers have been getting one whammy after another. Tighter credit conditions. No more rampant, construction-chasing, housing-market speculation. Yuan appreciation threatens exports. The end of export tax rebates, forcing mills to shift toward higher value-added products.

The jury’s still out on whether Exhibit A will come to define the second half of 2010. Chances are, China’s commodity demand won’t collapse.

Macroeconomic indicators are still relatively healthy despite volatility in the commodity markets. The two key commodities capesizes carry are iron ore and coal, and coal demand is expected to remain strong into the second half.

But, for China, Exhibit A might embody a vivid lesson: When trying to control global iron-ore trade, the campaign starts at home.

By Chuin-Wei Yap and James Campbell

Wall Street Journal

6/29/10

“My dear friends,

We wish to inform that the Chinese Government has decided to abolished the Tax Rebate on certain steel products as per the attached list. For your information, Hot Rolled Steel tax rebate will be abolished whether its width above 600mm or below 600mm. While Cold Rolled Steel tax rebate will be abolished for 600mm and below, while for 600mm and above, the tax rebate will remain the same. With this crucial decision made by the Chinese Government during this volatile market, prices in the International Market will be stable and Taiwanese Steel Mill such as China Steel Corporation (CSC) held the domestic pricing meeting for the July and August shipments of 2010 and announced the price increase and the average markup of domestic steel price per metric ton is about NT$1,645, which requests merely 6.8% lift.

The just settled surging prices for the second quarter global iron ores and coking coals approximate to an additional US$160 per metric ton cost for steel product, and a further increase of raw materials price is expected in the third quarter. Global steel mills can’t help but to accept miners’ unreasonable successive price spikes. Please feel free to forward us your firm enquiry and we shall quote you accordingly. I hereby attached herewith a copy of the Tax Rebate Abolishment list for your kind perusal.”

This elimination of the tax rebate for these products means Chinese steel will be less competitive in the USA market and may provide some assistance to the steel producers in the USA. 

China_Tax_Rebate_for_15th_July_2010_(English)

A strong Chinese yuan would mean an increase to the country’s purchasing power, which ameliorated concern that China would clamp down on spending.

Materials companies that deal with aluminum, steel and minerals such as gold and copper—along with energy companies—were among the best-performing stocks. Companies that don’t normally see a lot of options activity drew the interest of traders.

AK Steel Holding saw new calls that expire in August, including contracts at the $15, $16 and $18 strike price. Volume ranged between 300 and 500 contracts, where there previously had been no “open interest,” or unexpired contracts in the market. A call contract allows the holder to buy the stock at the designated strike price by the expiration date.

Conversely, traders bought new small positions in August $13 and $14 puts, which give the holder the right to sell the stock.

In total, nearly 13,600 calls traded, versus the nearly 3,400 puts that changed hands. AK Steel closed up 2.6% to $14.26.

Likewise, U.S. Steel saw new contracts snapped up for the August expiration date, with nearly 850 $46 calls and 800 $50 calls changing hands, versus 7,350 $46 puts and nearly 550 $45 puts.

U.S. Steel saw 29,000 calls and 20,000 puts trade. Shares closed up $1.56 to $44.97.

The trend toward August contracts was sparked by China’s move, but also traders looking to roll over bets to the next month, said Michael Schwartz, chief options strategist for Oppenheimer & Co.

With the June contracts expiring, July now becomes the “front month,” a futures term that signals the most immediate month. Traders looking for more time will buy contracts for the following month.

“They could be rolling over to buy some more time for a scenario that they’ve previously committed to,” Mr. Schwartz said.

Traders were looking further out with Freeport-McMoRan Copper & Gold. Nearly 5,400 November $70 calls traded, compared with open interest of 2,000. Nearer term, traders also snapped up nearly 6,000 July $70 puts, or more than double its open interest. Shares closed at $68.08.

Energy companies also were seen benefitting. Massey Energy saw more than 600 August $33 calls change hands, when there was previously no open interest. Nearly 400 August $36 calls were also purchased.

Massey shares closed at $32.05.

Patriot Coal also saw activity with contracts for the August expiration period, with nearly 300 $18 calls, more than 120 $19 calls and 130 $20 calls snapped up. Previously, there was no open interest on any of those contracts. Patriot Coal closed at $16.20.

By Roger Cheng

The Wall Street Journal

WORRIES ABOUT AN ECONOMIC slowdown in China , debt problems in Europe and the potential for a double-dip recession in the U.S. have pounded steel stocks in recent months. But the correction appears to have run its course, leaving the shares of U.S. Steel, Nucor, Steel Dynamics and AK Steel at depressed—and attractive—levels.

“Within the next 12 months, we’ll see a new high” in steel prices, contends Michelle Applebaum, an independent analyst based near Chicago. “I don’t think China is going to slow below a 5% GDP growth rate, and the commodity hunger that China has isn’t going to go away.”

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Kay Chernush/Getty images

The burning question: Will steel prices soon rebound? However, the next few months could be tough, Applebaum acknowledges. The Chinese government has been trying to slow the country’s economy, and particularly its construction industry, a large consumer of steel. Chinese price leader Baosteel recently lowered the prices of hot-rolled sheet steel by 9% to 13%.

China consumes about 35% of the world’s steel and has 60% of the world’s steel-producing capacity, so analysts watch it closely. Chinese production rose 20% in April. If April’s production numbers are annualized, global steel output could hit 1.5 billion metric tons this year, exceeding expected consumption of 1.3 billion metric tons, according to the World Steel Association.

The world’s most populous nation is an exporter to the U.S., which gets about 20% of its steel from imports. So there are fears that exports to America will rise as China looks for a place for its excess. The biggest worry: This extra supply could hit our market just as U.S. companies are bringing mothballed capacity back on line.

But if Beijing can successfully slow its economy, then it’s also capable of accelerating the growth rate if the slowdown seems too drastic. It’s also quite possible that steel prices will continue to fall, but demand—and thus volume—will keep rising, pushing up profits. Indeed that’s what happened in the second half of 2009, notes Brian Yu, Citigroup’s metals and mining analyst.

Capacity utilization in the U.S. steel industry has bounced back nicely from the depressed levels seen in the recession. It now stands at roughly 74% and has dipped only slightly in recent weeks, even as prices have slipped. That’s far from 2008′s horrible 33%, which sent most of the industry skidding into the red.

“In the mid-to-high 80s is where capacity gets tight, [and] people start paying a premium to get product in a reasonable time frame,” says Rick de los Reyes, a global metals and mining analyst at T. Rowe Price. And that’s where the industry may be in a year or two.

Regardless of which scenario materializes, prices already reflect concern about excess supply. U.S. Midwest hot-rolled coil steel slid from a high of $740 a metric ton in April to a recent $680, according to Citigroup. And many of the analysts we spoke with have factored a continued price decline into their forecasts. Some see steel fetching $600 to $625 by the end of this year.

Steel makers’ stock prices, which generally hit 52-week highs this spring, also reflect this new perception. Shares of U.S. Steel (ticker: X) are down 38% from their high above 70. (All prices quoted here are through Thursday’s close.) The less-volatile shares of mini-mill operators Nucor (NUE) and Steel Dynamics (STLD) are down 16% and 29%, respectively. AK Steel (AKS) has fared the worst—off 44%—thanks to a double whammy of economic fears and its having sourced much of its coke and coal from the Massey Energy (MEE) mine that has been shut since an explosion there killed 29 workers two months ago.

THE BEST WAY TO PLAY the industry depends on an investor’s risk tolerance.

While most steel shares have faltered, there are big differences among their issuers. U.S. Steel, for example, is the company most highly leveraged to steel prices. Steel Dynamics has the lowest P/E.

Nucor probably carries the least risk, owing to its nice 3.5% dividend yield. The company collects scrap metal, then processes it into new steel, capitalizing on the differential between the price of the scrap metal and the price of steel it produces.

Because prices of scrap and steel generally rise and fall in tandem, depending on the market environment, Nucor’s earnings tend to be less volatile than those of other steel outfits. Its stock price won’t rise as high in the good times, but it won’t fall as low in the bad times. The Charlotte, N.C., company, which posted a loss of 94 cents a share last year, is expected to earn $1.53 this year.

Last week, because of an accounting charge, Nucor trimmed guidance for the second quarter to 20-to-25 +cents a share, below Wall Street’s expectations. But at full capacity, the company could earn $5 a share, contends T. Rowe’s de los Reyes, whose firm owns the shares in various portfolios. Because of its consistent earnings and dividend, Nucor usually commands a price/earnings ratio above the industry’s average—currently nine times expected 2011 profits. So if one applies a 12 P/E to $5 a share in earnings, the stock could be worth $60, he concludes, compared with its recent price below 42.

MANY INVESTORS VIEW Steel Dynamics as a mini-Nucor, which makes sense, considering that it was founded by former Nucor executives. The company also turns scrap metal into new steel, but it is smaller than Nucor, so any sales increase or decline has a greater impact on earnings. Another big difference: Steel Dynamics has $2.4 billion of debt outstanding, so its balance sheet isn’t as strong as that of its larger competitor, which has relatively little debt.

Steel Dynamics is well-managed. Even in the fearsome downturn that battered the industry throughout most of 2009, it lost a mere four cents a share. Last week, the company forecast second-quarter earnings of 20-t0-25 cents a share, versus analysts’ 34-cents estimates. For the year, however, it’s likely to earn $1.34 a share, and profit could jump to $1.97 in 2011. Not bad for a stock that recently was changing hands at $14 and that boasts a 2% dividend yield.

Wilmington Trust Investment Management, which owns the shares, expects Steel Dynamics to earn more than Wall Street’s forecasts. Profit should come in at $1.50 this year, $2.12 in 2011 and $2.50 in 2012, says Rafael Tamargo, a portfolio manager at the firm. If the market assigns a 10 multiple to 2012 earnings, the shares, recently at 13.87, could hit 25 in 12 months, he says.

UNLIKE NUCOR AND Steel Dynamics, U.S. Steel makes its namesake product the old-fashioned way, from iron ore. Its stock’s steep drop since hitting its 52-week high in April reflects worries about the global economy, as well as some issues specific to the Pittsburgh-based giant.

For one thing, it has relatively high fixed costs. For another, its European operations kick in a substantial 25% of sales—a problem if debt and credit woes keep weighing on the Old World’s economy.

U.S. Steel is also highly leveraged to steel prices, which can be seen as a big advantage or handicap. If prices go up, it should handily outpace its peers. But if they stagnate or fall, it will surely be a laggard.

The company could earn $8 to $9 a share if steel prices move back near their 2008 high around $1,000 a ton. That could translate into a $90 stock in a few years, assuming the shares trade at a price/earnings ratio of 10, says T. Rowe’s de los Reyes.

As for AK Steel, it’s one of the industry’s most beaten-up stocks—too beaten-up, bulls assert. The West Chester, Ohio, concern got 20% to 25% of its coke and coal from the Massey Energy mine that is closed, so it has had to scramble to find new supplies. But, given that the prices of these commodities have fallen, this doesn’t seem to be an insuperable problem. AK has the industry’s lowest P/E ratio, 7.7 times 2011 expected earnings of $1.82. Fans think the stock, now at 14, could hit 20 in a year.

Certainly, all of these stocks are volatile. But for long-term investors who think the economy is slowly healing, the shares look tempting. As J.P. Morgan and Andrew Carnegie, two pillars in the late 19th-century rise of America’s steel industry, well knew, the time to buy is when fears are high and share prices are low.

By JACQUELINE DOHERTY

Barons

6/19/10