Steel's (X) (TS) (SIM) (CMC) (CRS) and China Demand

For the most part, as goes China so goes the demand for steel, and in that regard it doesn't look good for steel companies like Tenaris SA (NYSE:TS), Grupo Simec S.A.B. de C.V. (AMEX:SIM), Commercial Metals Company (NYSE:CMC), US Steel (NYSE:X) and Carpenter Technology (NYSE:CRS), which are going to be pressured in the years ahead from declining demand from the Middle Kingdom.

According to the China Iron & Steel Association, the Chinese government is pushing to slow down economic growth, which will result in demand for steel in the country to slow down.

Estimates under the current scenario for the steel sector have steel consumption declining in China by a minimum of 2.6 percent to as high as 4.6 percent in 2011.

Globally it doesn't look good for the next five years or so either, as the top estimates are for steel demand to grow at a 5 percent rate annually, although many think it'll be less than that.

In the short term, the U.S. steel industry should ship product at 14 percent above 2010 levels, reaching about 95 million tons in 2011.

All the companies are being affected by soaring iron ore prices and other inputs, which are putting stress on margins and earnings because buyers are hesitating to acquire product at too high of prices; something that will continue for several years.

For the steel industry, there isn't much to be optimistic about, no matter how the situation is spun. It's going to remain tough for some time.

US Steel closed Wednesday at $46.80, falling $0.68, or 1.43 percent.

Steel Firms (CPSL) (SIM) (ZEUS) (WOR) (CRS) Pressured on Low Growth Outlook

The steel sector, even with some strong recent quarters from companies, looks weak, as over the next five years it is projected to grow at a pace of about 5 percent or less annually, placing downward pressure on steel producers like China Precision Steel, Inc. (Nasdaq:CPSL), Grupo Simec S.A.B. de C.V. (AMEX:SIM), Olympic Steel Inc. (Nasdaq:ZEUS), Worthington Industries, Inc. (NYSE:WOR) and Carpenter Technology (NYSE:CRS). And that's the more positive outlook by most analysts. A large number don't believe growth will even happen at that rate.

A majority of steel companies are being pressured to increase 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 completely, because it's not. But rising demand in some segments 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 in some segments, 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.

Olympic Steel closed Friday at $29.37, falling $0.70, or 2.33 percent.

Ternium (TX) (STLD) (SIM) (CMC) (TS) 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 companies like Ternium S.A. (NYSE:TX), Steel Dynamics Inc. (Nasdaq:STLD), Grupo Simec S.A.B. de C.V. (AMEX:SIM), Commercial Metals Company (NYSE:CMC) and Tenaris SA (NYSE:TS); 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.

Synalloy (SYNL) (SIM) (TS) Pressured on Low Growth 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 Grupo Simec S.A.B. de C.V. (AMEX:SIM), Synalloy Corp. (Nasdaq:SYNL) and Tenaris SA (NYSE:TS), even with a couple of decent quarterly results coming from their peers, like Steel Dynamics (NASDAQ:STLD). And that's the more positive outlook by the majority of analysts. Many don't think growth will happen even at that rate.

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

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

There's no way to spin the outlook for the steel industry in a positive manner. The industry will struggle for years, even in the midst of better demand, as it attempts to work out the balance between steel demand, rising inputs, and ability for companies and countries to afford price increases from the producers.

Synalloy Corp. closed Thursday at $14.10, gaining $0.05, or 0.36 percent. Tenaris SA ended the session at $49.62, gaining $0.27, or 0.55 percent. Grupo Simec S.A.B. de C.V. closed at $8.65, dropping $0.09, or 1.03 percent.