Steel once again a hot commodity

Labor contracts were amended. Costs were driven down. And mills were modernized. Now, across the nation's steel industry, 160,000 employees produce 110 million tons of steel a year, says the American Iron and Steel Institute. In 1970, it took 500,000 workers to make 91 million tons. "The industry is better," Halpert says. Such efficiencies have made producing steel more profitable, he says.

Down-and-out dollar.

The weakness of the U.S. dollar compared with other currencies is causing titanic changes in the steel market, KeyBanc's Parr says.

Steel exported from the USA, thanks to the dollar, is competitive even in nations with lower-cost steel production, he says. Meanwhile, the weak dollar is making U.S. steel companies irresistible buyout targets for foreign steel companies.

European, Brazilian and Russian companies have been gradually buying the USA's steel companies. In 2005, for instance, Netherlands-based ArcelorMittal bought ISG and is now the largest steel company in the world. Russian steelmaker Evraz bought Oregon Steel Mills in 2006. More than half the nation's steel mills are owned by foreign companies, Parr says, up from 5% a decade ago.

This worldwide consolidation has put the steel industry into fewer hands, and now producers, not customers, are calling the shots when it comes to the price of steel, Parr says.

"It is a sellers' market right now," Richard says.

Can the boom continue? Commodity-based stocks often "get ahead of themselves," so Hanlon says investors shouldn't be surprised if steel stocks pause temporarily.

Executives, though, say the industry has changed so much in such a short time that the price of steel isn't coming down anytime soon. Siegal says now that many mills are owned by foreign companies, they'll just as soon export to their home countries as sell in the USA. That may cause prices to stay high, go higher or even create "spot outages," he says.

Don't expect additional supplies of steel to ease the situation, Parr says. There are a few new steel mills coming online, but there's still nowhere near the capacity to meet the current level of demand, Parr says. "We're five years into this," he says. "Basic materials cycles last decades."

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