Ahead of the Bell: Steel sector

An analyst cut his earnings estimates for several steel makers Thursday, saying demand has remained low in March, though he believes profits could improve later this year.

"Early 2009 is shaping up to be more subdued as end-demand momentum remained tempered through March," wrote KeyBanc Capital Markets analyst Mark Parr in a note to investors.

Parr said profitability in the first and second quarters is unlikely due to the credit crisis, depressed pricing and higher cost inventories, "each of which has remained in place through March and will not likely significantly abate" before the end of the second quarter.

"Conversely, the industry has kept its focus on supply discipline over and above the demand destruction imposed by the credit miasma, supporting ongoing inventory de-stocking for both service centers and end users," he said.

His revised outlooks imply that first quarter earnings could "mark a trough" from which quarterly earnings could improve later this year, he said. However, visibility remains "well below normal," he said.

Parr said recovery in the sector depends heavily on increased auto production. The federal government's Term Asset-Backed Lending Facility is aimed at freeing up credit to increase consumer access to car loans, he said.

In addition, he said scrap market prices could react quickly to an increase in demand, "serving as a good leading indicator for steel pricing."

And he said steel share prices have risen "despite any improvement in industry fundamentals."

Parr slashed his 2009 earnings per share estimates for AK Steel Holding Corp. to a loss of 40 cents per share from a profit of 80 cents per share. He reduced his 2009 estimate for Graftech International Ltd. to 65 cents per share from 80 cents per share and cut his 2009 estimate for U.S. Steel Corp. to a $3.45 per share loss from a $1.70-per-share profit.

He left unchanged his 2009 estimate of $1 per share for Nucor Corp.

Analysts surveyed by Thomson expect a 32-cent-per-share loss at AK Steel this year, Graftech to earn 78 cents per share and U.S. Steel to lose 81 cents per share.

Analysts expect earnings for Nucor to be $1.32 per share.