Friday, April 29, 2011

Schnitzer (SCHN) (USAP) (MEA) (ROCK) (CPSL) Pressured on Low Growth Steel Outlook

The steel industry, even with some strong recent quarters, looks weak, as over the next five years it is expected to grow at a pace of about 5 percent or less annually, putting downward pressure on steel producers like Schnitzer Steel Industries (NASDAQ:SCHN), Universal Stainless & Alloy Pr (Nasdaq:USAP), Metalico Inc. (AMEX:MEA), Gibraltar Industries, Inc. (Nasdaq:ROCK) and China Precision Steel, Inc. (Nasdaq:CPSL); although they traded a little stronger Thursday.

A majority of steel companies are being forced to raise prices on their products in order to protect margins and earnings as the price of inputs and commodities rise.

That's not to say steel demand is falling, because it's not. But rising demand doesn't guarantee rising profits, as the industry is experiencing. A number of weak economies around the world could cut also into demand if steel prices and products rise to prohibitive levels.

There's no way to spin the outlook for the steel industry positively. The industry will struggle for years even in the midst of strong demand, as they attempt to work out the balance between steel demand, rising inputs, and ability for companies and countries to afford price increases from producers.

It also looks like the U.S. economy is starting to sputter again, and that's not good news for the steel industry either.

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