PITTSBURGH -- Mounting fears on Wall Street of an economic slowdown caused by rising interest rates are driving steel stocks down, even though profits at U.S. steelmakers are expected to soar in 1995, analysts say.
Steel stocks have taken a beating in recent weeks amid fears that the Federal Reserve's moves to boost interest rates to ward off inflation could put a damper on car sales, construction starts and big-ticket appliance purchases.
Memories of robust third-quarter profits and the stunning yearlong resurgence of American steelmakers have faded in the rush on Wall Street to unload stocks tied to the economy.
"Steel stocks and many other cyclical stocks have pulled back," said Robert Schenosky, an analyst at Smith Barney.
"There is not only fear of a slowdown; the 'recession' word is starting to creep up."
Fueled by concerns about the Federal Reserve's actions, most steel stocks are down 20 percent to 25 percent from their 12-month highs and are trading near 12-month lows, Jordan Estra, an analyst at Merrill Lynch, wrote in a research report this week.
The Federal Reserve raised interest rates for a sixth time this year on Nov. 15, boosting the rate on overnight bank loans by three-quarters of a percentage point, to 5.5 percent. It was 3 percent at the beginning of the year.
One steel industry analyst said many investors are ignoring the steel industry's stellar performance and succumbing to the "boom-to-bust psychology."
Last year, Wall Street gobbled up millions of steel shares offered by companies, including Pittsburgh-based USX-U.S. Steel Group, the nation's largest steelmaker.
This week, National Steel Corp., the nation's fourth-largest integrated steelmaker, put its planned secondary offering of 6 million common shares on hold, citing market conditions.
Shares of National Steel have tumbled 30 percent since reaching
$20 on Oct. 10, two days before the offering was announced. The stock rose 25 cents, to $14, yesterday.
Reflecting Wall Street's jitters about the economy, Standard & Poor's Steel Index has tumbled 20 percent from a three-month high of 96.67 on Aug. 30.
The index tracks the share price of six of the largest U.S. steel companies: USX-U.S. Steel, Bethlehem Steel Corp., Inland Steel Industries Inc., Nucor Corp., Armco Inc. and Worthington Industries Inc.
The S&P; Steel Index recovered 0.32, to 77.07, yesterday. Shares Bethlehem Steel Corp., which has a plant in Sparrows Point, rose 12.5 cents, to $17, but are off 27 percent from their three-month high of $23.375, reached Aug. 30.
Shares of Nucor, the Charlotte, N.C.-based operator of steel mini-mills, rose 12.5 cents, to $53.125, but have fallen 25 percent since reaching a three-month high of $70.625 on Sept. 29.
Production snafus at Nucor's iron carbide plant in Trinidad and concerns about how proposed mini-mills at other steelmakers will affect Nucor's expanding business in flat-rolled steel haven't helped the stock.
Shares of USX-U.S. Steel, the nation's largest steelmaker, have plunged 21 percent since reaching a three-month high of $42.875 on Sept. 19. The stock fell 12.5 cents, to $33.875, yesterday.
The stocks' steep slide has occurred despite strong earnings for most steelmakers. Only last month, USX-U.S. Steel said third-quarter earnings before gains more than tripled to $58 million, or 69 cents a share, from $15 million, or 21 cents, a year earlier.
Despite the current anxiety about steel stocks, Mr. Schenosky and other industry analysts are still projecting a banner year for U.S. steelmakers in 1995.
The recent sell-off presents a "tremendous opportunity" to buy steel stocks, Mr. Schenosky said.
Mr. Estra predicts "continued high demand for steel products, low inventories, rising prices and prospects for additional earnings gains."
This year, U.S. steelmakers have been hard-pressed to keep up with the demand, producing at capacity and relying in many cases on imported steel slabs to supplement their inventories.
With few exceptions, analysts believe the steel supply will tighten even more next year as economies in Europe and Asia heat up. Improved economies abroad will in turn cause this year's record amount of steel imports to drop, analysts say.
U.S. steel imports rose 67 percent through August to about 19.2 million tons, setting a record for the eight-month period, according to the American Iron and Steel Institute.
Imports are expected to reach a record 27.5 million tons by the end of 1994, AISI projects.
Through September, shipments from U.S. steel mills rose 7 percent, to reach their highest nine-month level in 15 years.