Steel industry to post lower growth in 2007: S&P
By Our Corporate Bureau | 03 Feb 2007
Chennai: While 2006 was a year of strong earnings growth for the steel industry, Standard & Poor's Equity Research (S&P-ER) does not see similar growth prospects for the industry in 2007. Earlier ICRA had reported an equally disconcerting 2007 outlook for the steel industry.
These and other findings are available in a semi-annual report on the metals industry, Metals: Industrials Industry Survey, published by S&P-ER, a leading provider of independent investment research.
In its semi annual report on the global metals industry, S&P-ER sees a number of factors contributing to a decline in demand for steel in 2007. These include a slower growing US economy, a 2 to 3 per cent decrease in demand from the US auto industry versus an estimated 9 per cent gain in 2006 and a decline in shipments to distributors and original equipment manufacturers (OEM), compared to a projected 4 per cent gain in 2006.
"Many of the steel industry's clients are sitting on excess inventory that will take a good portion of the first half of the year to work through. Additionally, the industry is highly leveraged to the US automotive manufacturers, several of whom may cut production. When you factor all of this together, it adds up to our negative outlook on the industry," said Leo Larkin, senior metals and mining analyst.
"The lone bright spot for the industry is non-residential construction, but that one market won't be able to offset weakness in other markets in 2007," Larkin added.
S&P-ER believes the following companies are best positioned to weather the declines in the steel industry: Carpenter Technology, which has a 'Buy' recommendation (4 stars out of 5), is a maker of specialty metals for aerospace and other capital goods markets that should achieve strong earnings growth in 2007.
Additionally, S&P has 'Buy' (4 stars) recommendations on Commercial Metals, Gerdau Ameristeel and Reliance Steel & Aluminium due to their exposure to the non-residential construction markets and what S&P sees as attractive valuations.