Gloomy outlook seen for global steel industry

MANILA, Philippines – The steel industry’s outlook has dimmed with the unevenness of the global economy. Sales have dropped along with prices while costs have risen, leaving companies pessimistic about the rest of the year.

Two of the world’s biggest steel manufacturers turned in third-quarter performances on Tuesday that demonstrated how much expectations have changed since mid-year as many countries and regions fail to generate significant economic growth.

ArcelorMittal, the world’s largest steelmaker by output, and United States Steel Corp., the biggest US steel company, said the lack of recovery in the construction market, a huge customer for steel companies, is a primary drag on results. Other key industries, such as autos and appliances, are faring better but still aren’t using steel at pre-recession rates.

Argus Research analyst Bill Selesky said steel customers are worried about future growth, which has cut into their orders. “They don’t see it picking up noticeably down the road,” he said.

As a result US Steel, which in July predicted a profit for the third quarter, instead reported a $51 million loss. The company blamed the decline largely on the choppy recovery in North America and Europe, a weak construction market and seasonal buying patterns.

Higher repair and maintenance costs, following a structural failure in July at the company’s Gary Works facility in Gary, Ind., also damped results.

US Steel’s outlook started to deteriorate last month. John Surma, CEO of the Pittsburgh company, warned analysts at a Credit Suisse conference that demand was weaker than anticipated and he didn’t anticipate any improvement in the year’s final quarter.

Surma also said US Steel isn’t seeing orders for 2011 from automobile manufacturers that it would expect, given some of the automobile industry forecasts for next year.

Other US steel manufacturers reported similar struggles, particularly in the flat-rolled steel segments, which serves the appliance, autos and construction markets.

“The flat-rolled market in the US has been more challenged right now than it has been earlier this year,” said Bridget Freas, a steel analyst for Morningstar Inc.

The choppy economic recovery also has increased the number of steel imports flooding into the country, US Steel said. More imports from South Korea will lead to lower shipments and lower prices for the company, Surma said.

Whereas most countries are trying to spur growth, China is trying to slow its red-hot economy. Steelmakers there, who can’t sell as much domestically may try to undercut US companies by selling their products overseas at lower prices. US companies must then slash prices to compete.