U.S. Steelmakers Rise as Goldman Predicts Recovery

U.S. Steel Corp. (X) and AK Steel Holding Corp. (AKS) gained after after Goldman Sachs Group Inc. raised its rating on the unprofitable companies to buy from sell and said the outlook for the domestic steel industry is improving because of higher demand.

AK rose 11 percent to $5.11 at 10:31 a.m. in New York after climbing as much as 13 percent, the biggest intraday increase since June 27. U.S. Steel Corp., the country’s largest producer of the metal by volume, rose as much as 5.7 percent.

“We see the sector heading to a sustainable recovery over the coming years,” Sal Tharani, a New York-based analyst at Goldman, said in a note today. He revised his view of the U.S. steel industry to “neutral” from “cautious.”

“The supply-demand fundamentals for steel are starting to look more appealing, particularly for flat steel, as some supply has been taken out and demand drivers are firmly in place,” he said.

The U.S. steel industry has suffered from global overcapacity since the financial crisis. Pittsburgh-based U.S. Steel, the country’s largest producer of the metal by volume, said Oct. 30 it will permanently close parts of plants in the U.S. and Canada as it tries to reduce costs after four unprofitable quarters.

Domestic steel prices are recovering. Hot-rolled steel coil, a benchmark product used in manufacturing, are at $660 a short ton, the highest since September last year, according to data from The Steel Index, a trade publication.

U.S. Steel and West Chester, Ohio-based AK use blast furnaces to process iron ore and then combine the iron with other raw materials in basic-oxygen furnaces to make steel. U.S. competitors Nucor Corp. (NUE) and Steel Dynamics Inc. (STLD), which remelt scrap, have cheaper operating costs. Tharani today raised Fort Wayne, Indiana-based Steel Dynamics to buy from hold.

To contact the reporter on this story: Sonja Elmquist in New York at selmquist1@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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