U.S. steel prices reached all-time highs, and the stocks of companies in the sector climbed, before the industry tumbled with the global economy and ended 2008 with production cuts, layoffs and fears demand will continue to slide.
During the first seven months of the year, prices for the metal peaked, as booming demand from China — the world's largest consumer and producer of steel — helped drive up the costs of steel-making materials such as iron ore.
For the three months through September, United States Steel Corp. had its most profitable quarter ever. Another large steel maker, Nucor Corp., also posted record results, with profit nearly doubling. In late June, U.S. Steel traded near $192 per share and in May Nucor hit a 52-week high of $83.56.
But orders for steel products began to subside in August, as China's expansion slowed and the steel-intensive construction industries in North America and Europe weakened. U.S. automobile makers — important steel consumers — reported significantly lower sales and continued moving toward smaller cars built with less metal. A strengthening dollar, meanwhile, dampened exports, and a credit crisis, touched off by troubles in the housing market, intensified, leading steel customers in the key markets of construction, automobiles and industrial equipment to tighten purse strings.
"Business froze, credit froze and people stopped buying everything, including steel," said Michelle Applebaum, an industry analyst. "You've seen prices for some products down as much as 40 percent."
Shares of U.S. Steel, the largest U.S.-based steel company, plunged 69 percent, performing far worse than the broader market. During the same period, the Standard & Poor's 500 Index dropped 39 percent and the Dow Jones Total Market index lost 39 percent.
Among the best performing stocks in the sector was Charlotte, N.C.-based Nucor, which operates electric furnaces that can be started and shut down more quickly than traditional blast furnaces, depending on demand. Nucor also benefited from lower prices for scrap metal, which the company uses to make steel.
"Companies like Nucor fared better because they do not own any raw materials, so they didn't have to worry about the decline in raw material prices," said Michael Willemse, an analyst with CIBC World Markets. Nucor shares declined about 22 percent for the year. Like some other companies, its shares rose in December after President-elect Barack Obama proposed an infrastructure spending plan that would require steel.
Shares of AK Steel Holding Corp., however, fared far worse. Stock in the West Chester, Ohio-based company, a supplier to the auto industry and a rumored takeover target, have plunged 80 percent.
As the industry contracted in the second half of 2008, steel companies slashed production and furloughed workers in hopes of lowering supply to meet the diminishing demand.
Domestic raw steel production sank 44 percent for the week ending Dec. 13 compared with the same week in 2007, according to the American Iron and Steel Institute, an industry group. Steel mills operated at slightly less than half their capacity compared with 88 percent a year earlier.
That was the 17th consecutive week of declining production at U.S. steel mills as rates dropped to levels not seen in 25 years, according to Platts, the energy information arm of McGraw-Hill Cos.
(This version CORRECTS Dow Jones Total Market index.)
