Zacks Industry Outlook Highlights: Nucor, AK Steel Holding and Allegheny Technologies Incorporated

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Mar 24, 2011, 09:30 ET

CHICAGO, March 24, 2011 /PRNewswire/ -- Today, Zacks Equity Research discusses the Steel Energy Industry, including Nucor Corporation (NYSE: NUE), AK Steel Holding (NYSE: AKS) and Allegheny Technologies Incorporated (NYSE: ATI).

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A synopsis of today's Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/49743/Steel+Industry+Outlook+%96+March+2011

With the global economy in a recovery mode since late 2009, the steel industry should continue on its recent improvement trend. However, given its economic sensitivity, we expect global steel demand to improve only gradually, in line with the recovery in the user industries, especially automotive and residential construction. According to World Steel Association ("worldsteel"), steel demand in the U.S. was down 41.6% in 2009 at 57.4 million tons. However, with the economy in recovery mode, the industrial sector is expected to drive an increase of 5.3% in steel demand.

The steel industry has recorded high growth rates in both production and consumption over the past few years, benefiting from soaring steel demand in the automobile and construction sectors before the recession. Moreover, cost effective and highly efficient steel-making technologies have lifted the demand for US steel in the Middle Eastern and Asian countries.

Worldsteel expects steel demand in India to grow 13.7% in 2011, following a growth of 7.7% in 2009. The EU steel demand is expected to increase by 4% in 2011 and 2012 driven by the restocking of inventory. Spain and Italy saw a significant fall in steel production with the breakdown of their construction market.

In the short term, local steel demand in Japan will be lower as the country's carmakers have suspended production following the earthquake. However, the need for reconstruction of earthquake-devastated areas offers the steel industry significant hope. In the medium term, steel demand will likely surge.

India's steel demand is expected to grow by 13.6% in 2011. With 68 mmt of apparent steel use in 2011, India will become the third largest consumer of steel in the world after China and the US. India's steel use will be 32% above its 2007 level.

However, WSA expects the Chinese steel consumption to decelerate in 2011 as China tries to ease back on its own economic boom. Globally, WSA anticipates steel demand to rise 5.3% to 1.34 million tons in 2011.

Nearly 55% of Nucor Corporation's (NYSE: NUE) steel sheet volumes are under long-term price contracts, which should help it to navigate the slow economic recovery and maintain near-term profitability. Nucor is also striving to find innovative and cost-efficient ways to produce steel. The company's Castrip technology will structurally lower its cost of production and lead to meaningful long-term savings.

Commercial metals company AK Steel Holding (NYSE: AKS) reported strong fourth-quarter 2010 results. For first-quarter 2011, AK Steel expects a 7% sequential increase in the first quarter of fiscal 2011, leading to 1,450,000 tons and approximately 8% increase in its average per-ton selling price. The expected increase is attributable to the anticipated higher contract and spot market prices and better product mix.

On the other hand, one of the largest and most diversified producers of specialty materials in the world, Allegheny Technologies Incorporated (NYSE: ATI) recorded a net income of $15.1 million, or 15 cents per share in the fourth quarter of 2010, falling significantly short of last year's $37.8 million, or 36 cents per share. Fourth-quarter results were impacted by a $19.5 million LIFO inventory valuation reserve charge and $20.4 million in start-up and idle facility costs, which reduced earnings by 26 cents per share.

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