NEW YORK (AP) -- Investors should tread lightly with steel stocks despite a recent stock-price upswing, a Jefferies analyst warned Wednesday.
The industry's stocks rose a day earlier, part of a broader rally driven by hopes that the Federal Reserve would come up with a plan to jumpstart the economy. The Dow Jones industrial average rose to its highest close in a month.
But Jefferies analyst Luke Folta said in a research note Wednesday that the steel industry's woes will continue. Demand from the construction sector remains weak, costs for raw materials are high, credit is tight and there's too much steelmaking capacity, he said.
Ongoing turmoil in Europe and slowing construction activity in China has led to many shuttered or idled plants, but many executives say the industry still needs to get smaller to accommodate sliding demand. It's a far cry from earlier this year, when the industry seemed to be on its first sustained upward climb since the recession, with prices getting a boost from growth in the auto and energy industries.
A number of major steelmakers have warned in recent days that their earnings will not live up to Wall Street's current expectations, including Steel Dynamics Inc., Nucor Corp. and AK Steel Holding Corp.
Stocks of many steel companies have declined sharply in the past year. For example, shares of AK Steel, which added 3 cents to $5.37 in morning trading Wednesday, traded as high as $16.75 last July.
Nucor stock dropped 12 cents to $38.31 while Steel Dynamics shed 5 cents to $11.99. United States Steel Corp. gained 30 cents to $20.45.