Ahead Of The Bell: Steel Sector

HARTFORD, Conn. (AP) — Domestic steel prices are on the rise as demand increases and inventories remain weak, though investors may be cautious as prices for Chinese steel declines in the short term, an analyst said Wednesday.

KeyBanc analyst Mark L. Parr said the fundamentals of domestic flat-rolled carbon steel — a sheet-like product used for auto and appliance production — "appear increasingly intact over the near term."

Prices are near $550 to $560 a ton for September-October delivery, up from about $525 a ton for deliveries now, he said in a client note.

Service center inventories remain well below normal levels and issues related to restarting operations have pushed steel production orders to November and December, Parr said.

"We sense the confluence of these dynamics, in tandem with the dichotomy of the improved financial condition of the industry vs. previous cyclical troughs and the increasing difficulty of smaller, private buyers to obtain capital, will continue to enhance pricing power through year-end despite generally anemic demand patterns," he said.

U.S. flat-rolled carbon steel markets have modestly improved into the third quarter, Parr said. However, a recent drop in spot hot-rolled pricing in China followed a price increase for September announced by Baosteel "may induce some investor cautiousness as more clarity begins to emerge over the next several weeks," he said.