NEW YORK ( TheStreet) -- For the past two-plus years, investors have been told they needed guts of steel to invest in the steel industry. Either that or they have to have first developed an extremely high frustration threshold.
Unlike commodity markets like aluminum and copper, where oversupply has become a legitimate concern, I've become a little less jittery about the future of steel. This is not because there are still no risks. I just don't believe the so-called "end times" for this industry is accurate, if not entirely exaggerated.
The recent results from AK Steel (AKS), for instance, demonstrated what is possible with competent management. The company went from posting a $230 million loss in one year to a fourth-quarter profit of more than $35 million last week. Clearly there are opportunities, if these companies know how to maximize value.
In the case of ArcelorMittal, which has enjoyed a solid reputation as the premier name in integrated steel, the company has done more than a decent job overcoming to weak prices and slumping demand. Management has established a two-year plan to take out upwards of $3 billion in incremental costs in what the company calls a "cost optimization program."
This is an initiative geared more towards variable cost reductions than fixed cost savings, which makes sense seeing as how unpredictable the steel industry has become. Since the start of this program, ArcelorMittal has posted better-than-expected results, particularly in from an EBITDA perspective, which stands for earnings before interest, taxes, depreciation and amortization.
EBITDA is the standard metric used to measure performance in the steel industry. It's true EBITDA is still lower than the company's historical standard, but it has steadily risen over the past couple of quarters and has met estimates. Plus, investors continue to discount that these operational improvements coincide with sequential increases in steel shipments.