Steel Winners and Losers: Olympic

Updated from 11:43 a.m. ET

Weak demand is threatening steel industry efforts to shield itself from low prices, an analyst said in a note to investors late Tuesday.

However, Goldman Sachs analyst Sal Tharani upgraded Olympic Steel(ZEUS Quote) and Nucor (NUE Quote), citing their strong balance sheets.

Tharani predicted further deterioration in end markets for steel such as nonresidential construction, autos, appliances, industrial production and energy.

Federal stimulus funding for infrastructure projects should help, but it will not offset "very weak private sector demand" and the impact will not be felt until the end of this year at the earliest, he said.

Tharani reduced his 2009 price estimate for hot rolled coil to $455 per ton from $534 per ton. He expects prices to bottom out in July at $430 and recover to $450 by the end of the year.

He raised his ratings for Nucor and Olympic Steel to "Buy" from "Neutral." Tharani also said he expects Nucor's earnings to outperform peers due to a low and variable cost structure and its diversified mix of products.

He downgraded Reliance Steel(RS Quote) to "Neutral" from "Buy" because of his preference for Olympic Steel.

Olympic Steel shares fell 35 cents, or 2.5%, to $13.50, while Nucor added 33 cents to $36.90.

Tharani said some firms such as Worthington Industries(WOR Quote) may not be able to continue paying a dividend due to weak markets.

Tharani said that some companies such as AK Steel(AKS Quote), Steel Dynamics(STLD Quote), Worthington Industries, United States Steel (X Quote) and Gibraltar Industries (ROCK Quote) could breach covenants later this year, requiring them to renegotiate with banks and increasing financing costs.