Foreign companies in Brazil and Asia are now heavyweights in the steel industry, and many view the U.S. industry as a relic of the early 20th century. But for the savvy investors there's money to be made in U.S. steel.
First, look at the business cycle. The global recession put a squeeze on economic activity, but recovery is at hand and that will boost demand for steel.
Nucor (NUE), a Charlotte, N.C-based steel producer, is issuing guidance based on that sentiment.
Nucor expects first-quarter results for 2011 to hover in the range of 30 cents to 35 cents per diluted share, way up compared to earnings of 10 cents per diluted share in the first quarter of 2010 and a loss of 4 cents per diluted share in the fourth quarter of 2010.
"As we expected, our profitability has improved each month from the beginning of the quarter to the end of the quarter, as utilization rates increased and as price increases for steel-mill products caught up with higher raw-material costs," the company says. "We expect this trend to continue through the second quarter. We continue to believe that end markets are experiencing some real demand improvement.”
U.S. Steel (X), meanwhile, should see its stocks perform in line with market expectations, according to Zacks Investment Research. "U.S. Steel’s operating results are beginning to reflect the benefits of the gradual economic recovery in North America and Europe," the research firm says.
Lastly, the Japanese earthquake and devastating tsunami will benefit steel producers in the United States and elsewhere.
Japan is the second-largest producer of steel in the world and, with its production disrupted, others must step up to fill in the gap. According to a Reuters poll, the March 11 disaster has negatively affected nearly 60 percent of Japanese companies, disrupting production and supply chains.
Japan produced 8.9 million metric tons of steel in February, down from 9.7 million metric tons in January but 5.7 percent above February 2010.
The earthquake will put a dent in those figures. While imports to Japan will not likely surge due to the drop in domestic activity resulting from the earthquake, the absence of Japanese exports to the world will prompt global producers to fill the void.
Then, once recovery is under way there, foreign supply might be needed to rebuild.
© 2017 Newsmax Finance. All rights reserved.