PITTSBURGH (AP) -- Steel companies' pension assets are expected to fall sharply because of deteriorating financial market conditions, according to a Goldman Sachs analyst.
Sal Tharani wrote in a research note Thursday that the expected decline "could affect the funded status of defined pension plans, and consequently, the financial results of the companies."
Companies that could suffer in 2009 include United States Steel Corp., AK Steel Holding Corp. and Allegheny Technologies Inc., which have unionized workers and legacy issues, he wrote.
"Worries about pension plan deficits in the steel sector have been broadly ignored by investors for the past couple of years as a bull market has raised returns on pension assets, closing underfunding gaps for most defined benefit plans and in some cases bringing these plans to an overfunded status," according to Tharani.
"A sharp deterioration in equity markets in 2008 would be negative for pension expense and 2009 (per-share earnings) estimates," he wrote. "Though the companies can amortize these losses or gains, we believe that funding requirements will be a big concern for companies, especially during these markets when cash preservation is a key focus."
Tharani has a "Sell" rating on U.S. Steel and "Neutral" ratings on AK Steel and Allegheny Technologies.
U.S. Steel could be hardest hit by the pension decline in 2009, according to Tharani. "We estimate about a 4 percent decline in our 2009 (earnings per share) estimate for U.S. Steel and we expect its plan to be underfunded by $2.2 billion."
The company would also be required by law to make significant cash contributions over the next several years to close the funding gap, he wrote.
Shares of U.S. Steel rose $1.80, or 5.6 percent, to $33.71 in morning trading. AK Steel stock added 16 cents to $10.98. Allegheny Technologies' shares gained 5 cents to $23.83.