Steel shares fall amid grim world economy forecast

Shares of steel manufacturers fell sharply Monday as the World Bank cut its 2009 global growth forecast, saying the world economy will shrink by 2.9 percent.

The bank's latest forecast is a sharp reduction from its March prediction of a 1.7-percent global contraction, which it said then would be the worst on record.

Economic damage to developing countries "has been much deeper and broader than previous crises," warned the report, issued Sunday in Washington.

The global economy should start to grow again in late 2009, but "the expected recovery is projected to be much less vigorous than normal," the World Bank said.

In addition, Steel Dynamics Inc. projected a larger second-quarter loss Friday than Wall Street initially estimated, but said business conditions appear to be improving. The Fort Wayne, Ind., company said it expected a loss of 10 cents to 15 cents per share, while analysts polled by Thomson Reuters expect a loss of 9 cents per share.

Analyst Dana Guido of Merriman Curhan Ford and Co. on Monday raised her second-quarter estimate to a loss of 10 cents per share from a loss of 46 cents per share.

She reiterated a "Neutral" rating on Steel Dynamics "as we believe the current valuation largely reflects our assumption of higher operating rates in 2010," she said in a note to investors.

Guido said she is looking for improved earnings from steel manufacturers in the next several quarters, but said investors should shift from the more defensive minimills to the higher fixed-cost integrated mills as domestic capacity utilization rates rise.

Shares of Steel Dynamics fell $1.58, or 10.2 percent, to $13.86 in afternoon trading. United States Steel Corp. dropped $3.13, or 8.33, to $34.44 and AK Steel Holding Corp. slid $2.27, or 11.9 percent, to $16.71.