NEW YORK, Dec 6: Shares of steel companies rallied on Wednesday, a day after USX-US Steel Corp. and Bethlehem Steel Corp. said they were in merger talks with several others to create the nation’s biggest integrated steel maker.
Analysts also attributed the rise to signs that the long depressed domestic steel industry is seeing relief from excess supplies.
Shares of Bethlehem were up 30 cents, or 64 percent, at 77 cents in late afternoon New York Stock Exchange trade, while US Steel rose $1.32, or 7.8 percent, to $18.27.
Stocks are up because of the Bethlehem Steel merger overture, which could lead to a reduction in capacity, said Goldman Sachs steel analyst Aldo Mazzaferro.
Despite a drop in demand, Mazzaferro said, we’re starting to get tightness in the market based on overall supply reductions, which have been pretty dramatic in the US.
On Tuesday, Bethlehem Chief Executive Robert Miller said that his company, which is in Chapter 11 bankruptcy proceedings, is interested in merging with US Steel and is in talks with at least three other steel companies to consolidate the domestic industry.
The US steel industry has been struggling for years from cheap imports, low demand, and spiraling costs for retired workers. The proposed merger plan involves asking the US government for help with some of those costs.
However, relief for the industry may be coming soon, said analysts. Nucor Corp. a leading minimill and the biggest recycler, on Tuesday announced a 9 per cent price increase on hot-band sheet steel, the first time a steel maker has raised prices since last spring.
Also, steel maker LTV Corp. faces liquidation as a bankruptcy court on Tuesday in Ohio started reviewing a plan to save the company, which filed for protection from creditors last year.
Both events point to a reduction in steel supply that could benefit the industry, which is seeing prices at 20-year lows.
This could be the potential beginnings of a revitalization of the global steel industry, said Mazzaferro. We’re pretty bullish on the sector, the bad news is peaking, and the stocks are attractively valued.
Steel companies also rallied on expectations that the International Trade Commission will propose relief for the industry in the form of stiff tariffs or quotas on steel imports. The US trade agency, which has already ruled that imports have hurt US steel companies, will issue its recommendations to President Bush on Friday.
Shares of Nucor were up $3.90, or 7.8 per cent, at $53.72 on the New York Stock Exchange.
National Steel Corp. and WHX Corp.’s Wheeling-Pittsburg Corp. have also participated in the merger talks. National Steel shares jumped 60 cents, or 48 per cent, to $1.85 on the NYSE, while WHX rose 7 cents, or 4.9 per cent, to $1.49.—Reuters