Steel Stocks Ease On Worries Of Bloated Inventories

Mild pullback comes after rally onWednesday. Long-term outlook still seen as strong.

NEW YORK (AP) - Shares of steel companies on Thursday gave back some of Wednesday's gains amid a mild market pullback and concerns that inventories overstocked with steel will lead to lower prices.

Soleil Securities analyst Charles Bradford said steel stocks typically rise or fall cyclically with the overall market. Profits at steel companies are tied to the strength of the market because companies in an expanding economy buy steel to build new factories, buildings and cars.

''Everything depends on what the economic outlook is,'' Bradford said. ''These are cyclicals; it's very hard to make money in cyclical stocks when the general forecasts are for slowing growth. You really can't create demand.''

Steel stocks spiked during the bull market beginning in 2003 as steel prices ballooned, the Chinese and Indian economies heated up, and Mittal Steel Company NV gobbled up steel mills across the world, building takeover premiums into stocks across the sector.

Fear that the Federal Reserve will continue raising interest rate targets to squash inflation at the expense of an economic downturn has battered the market since early May, dragging steel stocks down from multiyear highs.

UBS Investment Research analyst Timna Tanners said steel executives presenting at an industry conference this week were ''nearly unanimously bullish.''

Some executives worry about softening prices, but ''they struggled to find a motive for falling prices in the near term,'' Tanners said.

Bradford said steel inventories are building as buyers ''sit on their hands'' amid signs of an economic slowdown. Bradford said while steel stocks may fall cyclically and face some inventory and pricing issues, the long-term outlook for steel companies is very strong.

''Any steel company not making money in the second quarter needs new management immediately,'' Bradford said. ''The biggest problem in the steel industry is what they're going to do with the cash.''

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