Sector Wrap: Steel producers' shares retreat

Shares of steel producers fell Monday after an analyst said declining prices for scrap metal, an important feedstock for many companies, may force producers to cut their prices.

Soleil Securities Group analyst Charles Bradford, citing steel scrap price data from the weekly American Metal Market, said the trade publication's data may seriously understate the extent of falling scrap prices.

Bradford said some steelmakers have a surcharge system that changes their steel prices as the price of steel scrap changes. This is largely geared to prime scrap grades that have fallen more than $300 per ton during the last week, to $550 a ton.

"It will be interesting to see if the mills drop their prices as fast as they raised their prices when scrap prices soared. We believe that the steel stock prices will follow steel prices, although lower scrap costs help company profit margins and will eventually offset the reduced revenues."

In afternoon trading, shares of United States Steel Corp. fell $5.73, or 5 percent, to $107.88, shares of ArcelorMittal fell $2.27, or 3.5 percent, to $12.04 and shares of Olympic Steel Inc. fell $3.22, or 7.7 percent, to $37.34.