It's not exactly a secret that the metal markets have cooled throughout the first quarter of 2005. With demand hurt by slowing economic growth in Europe and weak production from big consumers like Ford (NYSE:F) and General Motors (NYSE:GM), it's been a tough few months. Comparisons to the red-hot markets in the back half of 2004 don't make it any easier.

Metal Management (NASDAQ:MTLM) has a ground-zero position in the metal market as it's one of the country's biggest and best scrappers and recyclers. As such, the company saw a challenging fourth quarter (ended March 31).

Sales were up 25% for the quarter, but EBITDA declined more than 30% and net income was down by a third. Shipments of both ferrous and nonferrous metals grew in the quarter (9% for ferrous, 14% for non-ferrous), but pricing was challenging. Scrap metal prices fell from around $400/ton at the end of 2004 to around $240/ton in March -- an incredible decline for one quarter.

That's pretty much the nature of the beast, though. While the past few quarters have seen remarkable price volatility in both directions, scrap-metal markets are often more sensitive than finished-metal markets. The finished-metal markets' lagging performance is flowing down to Metal Management as well.

For what it's worth, Metal Management is one of the best in the game. Not only does the company now pay a dividend, but management took advantage of a great year to pay off debt and improve its balance sheet. Better still, management has maintained its discipline and kept the business in a good position to act as a consolidator in the industry.

Investors in Metal Management are going to need some patience. The industry is volatile now, and year-over-year comparisons will be challenging. On the plus side, the balance between demand and supply across the metals industry seems pretty tenuous. If world-wide economic growth ticks up, prices could rise quickly. Of course, the flip side is also true.

Forge ahead with these Foolish takes on the steel industry:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).