It's been less than a week since Oregon Steel (NYSE:OS) became the latest of several American steelmakers to release conservative performance statements. And already yesterday, Steel Dynamics (NASDAQ:STLD) has chimed in with its own downbeat forecast. Based in part on "lower costs as the price of steel scrap declined," the company talked down its earlier prediction of a "strong first half" in 2005.
A month and a half after painting a generally rosy picture, Steel Dynamics now sees "higher than expected raw material costs" combined with "soft market conditions" caused by "excess inventory." The company also said that the second half of last year saw "substantial imports," which helped to create the excess inventory that its clients are still working through. All in all, it's not a very pretty picture, and Steel Dynamics acknowledged that the quarter was shaping up worse than expected. As a result, it cut back its earnings forecast to $1.10 to $1.20 per share for Q1.
Now let's take a look at the good news. Despite all of the above problems, Steel Dynamics is still looking to see profits that are "well above" the $0.58 a share it earned in Q1 2004. Moreover, at least part of the current quarter's problems stemmed from unplanned production outages caused by equipment problems that have already been repaired. Steel Dynamics expects profits in the second quarter to spike sharply, arriving somewhere between $1.43 and $1.68.
Finally, look at the major piece of good news for the steel industry over the past week: Nucor's (NYSE:NUE) clarification on March 11 that it is riding high through the current steel downturn. The Charlotte, N.C., steel producer upped its own previous guidance by 13%-15% for Q1 2004, sparking a momentary boomlet in steel stocks.
The current steel cycle may still be rolling. If so, we may be looking back a few months from now and saying that, in retrospect, the warnings from Oregon Steel and Steel Dynamics were mere blips on the radar screen. Still, from where investors are sitting now, the blips are coming pretty quickly. So, if I might borrow a quote from Sgt. Phil Esterhaus: "Hey, let's be careful out there."
Fool contributor Rich Smith has no position, short or long, in any company mentioned above.
