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It's official: The fires of American industry are beginning to burn once again!
When steelmakers first showed signs of improving market conditions toward the end of 2009, straight-talking Fools, including Nucor (NYSE: NUE ) CEO Dan DiMicco and me, were reluctant to read too much into what was initially just a modest stabilization in demand near the end of an epic, industrywide inventory destocking event.
As we trudge deeper into 2010, weakness in domestic construction markets continues to weigh on this bellwether sector, but the latest earnings results from a pair of domestic metalsmiths show that production increases in other segments of the market are nothing to shake a steel-clad stick at.
AK Steel (NYSE: AKS ) boldly proclaimed in its first-quarter earnings release that the company is "firmly on the road to recovery." Observing adjusted net income of $27.2 million on the strength of a 78% increase in shipments to 1.39 million tons, even this skeptical Fool will concede that domestic steel demand -- excluding the dreary construction market -- has gathered strength more quickly than I anticipated just a few short months ago.
Noting uncertainty regarding future cost inputs now that iron ore producers BHP Billiton (NYSE: BHP ) and Vale (NYSE: VALE ) have moved to abandon the traditional annual benchmark pricing system, the company declined to issue second-quarter guidance for operating income.
With the company's flat roll segment now operating at full capacity, steel shipments surged a remarkable 20% sequentially from the fourth quarter of 2009. Rather than sweating the price wars ongoing in the iron ore market, this scrapping specialist seeks to attain iron "self-sufficiency" as early as 2011 through a pair of initiatives to produce pig iron and iron nuggets. Steel Dynamics also reported weak structural steel demand from persistent ills in nonresidential construction, but it sees demand for rail products continuing to improve throughout the year.
These improving indicators have been corroborated recently by major industrials in sectors like coal and railroads. Arch Coal (NYSE: ACI ) observed a 2.6% increase in electricity demand so far this year, and railroad operator CSX (NYSE: CSX ) noted improved shipping volumes in virtually every freight category.
Whether a major portion of this demand is of a synthetic sort -- fabricated through government stimulus spending or simple inventory restocking -- remains to be seen. For now, let's just take pleasure in observing that capacity utilization is on the rise, and also in the welcome implication that some previously laid-off mill workers may now be returning to work. I still don't know where this road leads, nor for how long it may wind through Rocky Mountain-esque peaks and valleys, but at least from this height we can see the next few miles of a prospective road to recovery.
Which domestic steelmaker will you choose as your steely wager for eventual recovery in the U.S. industrial sector? Please nominate your favorite in the comments section below, and cast your official vote by joining Motley Fool CAPS and adding your pick to your CAPS portfolio.