Shares of steel manufacturers surged Friday after a JPMorgan analyst forecast a continued rebound in steel prices fueled by higher materials costs and some improvement in demand.
"Given the increased demand, cost pressures and still tight supply situation, we think announced price increases will stick and expect to see more before the spring," JPMorgan analyst Michael Gambardella wrote in a client note. He raised price targets and earnings estimates for AK Steel Holding Corp., United States Steel Corp. and ArcelorMittal.
Steel producers, who were hit hard with the decline in construction and auto manufacturing among other industries, have announced price hikes for this year that are expected to boost hot-rolled sheet prices to a range of $550 to $580 a ton by February, Gambardella said.
In November and December, hot-rolled sheet prices hovered around $500 a ton, he said.
Furthermore, prices for raw materials used in the manufacture of steel — such as iron ore, metallurgical coal and scrap — all have had "strong gains," he said.
Scrap prices, for example, have increased 25 percent since mid-November lows and may increase an additional 15 percent due to seasonal supply constraints, stronger exports and low inventory levels at the mills.
Gambardella's comments mirrored those from other analysts. Earlier this week, Longbow Research analyst Luke Folta said he expects raw materials costs to continue to increase this year.
For AK Steel, Gambardella raised his December 2010 share price target to $34 from $29. He raised his share price target on United States Steel Corp. to $75 from $55 and his price target on ArcelorMittal to $55 from $45.
Shares of AK Steel advanced $2.20, or 9.3 percent, to close at $25.77. They earlier set a new year high of $25.92, eclipsing a previous peak of $24.40.
Shares of United States Steel also hit a new year high, at $66.08. They finished Friday's trading session up $4.43, or 7.3 percent, at $65.34. They have ranged from $16.66 to $61 over the past year.
ArcelorMittal shares rose 91 cents to close at $48.96. They earlier traded at $49.41, topping a previous year high of $48.28.
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