It hasn't been a hot market for steelmakers so far this year, and analysts don't expect the story to be much different in the second half of 2013 amid sluggish demand in key end markets and steelmaking overcapacity worldwide.

 

Steelmakers with local ties haven't had anything to shout about to this point. For example, Canton-based Timken Co.'s overall sales declined 16% in the second quarter compared with the like period last year, and its steel sales fell 29%. The company blamed reduced shipments to the industrial and oil and gas markets for the latter decline.

 

Pittsburgh-based U.S. Steel Corp., with operations in Lorain, posted a loss of $78 million in the second quarter compared to net income of $101 million in the second quarter of 2012. And Luxembourg-based ArcelorMittal, which operates a Cleveland plant, reported a second-quarter loss of $780 million versus a profit of $1.02 billion in last year's second quarter and has lowered its earnings guidance for the full year because of weak demand and lower-than-expected raw material prices.

 

Representatives of U.S. Steel and Timken wouldn't comment on the results. A representative of ArcelorMittal sent brief comments by email, noting that for the United States, the automotive industry is “robust” and that the construction industry, especially residential construction, was improving. The company did lower its demand growth forecast by 1%, citing a weak start to the year and government cuts. It also cited weaker steel consumption growth due to caution from distributors and softness in the energy and manufacturing markets, due in part to lower export demand.

 

Justin Dammel, an equity research analyst for Fifth Third Bank, said analyst expectations for 2013 have been steadily dropping since the year began. There was a downward trend on pricing due to a generally sluggish economy and a drop in demand in the Chinese market, he said. The automotive and oil and gas industries did well, and some companies expected improvement in nonresidential construction, too.

 

“But strong growth just has not materialized,” Mr. Dammel said.

 

And that's significant, because the residential and nonresidential construction industries make up a “decent chunk” of the end-use steel market — about 40%, Mr. Dammel said.

 

Sheraz Mian, director of research at Zacks Investment Research, said the nonresidential construction market has been the topic of conversation on analyst calls. Mr. Mian tracks the performance of S&P 500 companies, which includes four in the steel industry: Nucor Corp., Cliffs Natural Resources, U.S. Steel and Allegheny Technologies Inc.

 

Mr. Mian said the consensus expectation is that the nonresidential construction market will improve, but he doesn't expect the steel industry to see significant growth until 2014. Mr. Mian said he expects the steel industry to improve in coming quarters, “but not materially.”

 

Phil Gibbs, an equity research analyst at KeyBanc Capital Markets Inc., also mentioned the lagging commercial construction industry as a big problem for the steel industry. It's one of the one of the most important markets and the one that has been lagging the most in terms of improvement, he said.

 

Mr. Gibbs also said while steel demand indicates the market is improving a bit, there is still a global excess steelmaking capacity, especially in China and Europe, which gives investors pause. He said the second half of the year is typically weaker for steel, but he expects a slight improvement this year. Many in the supply chain drew from their inventory in the first half of 2013 rather than buy steel, and their inventory levels are becoming low, Mr. Gibbs said.

 

Andrew Lane, an equity analyst at Morningstar Inc., said he didn't see a strong “near-term catalyst” that would affect steel sales, but he did note one possible trend worth watching. Some domestic steel companies have signed a petition to keep foreign companies from illegally dumping tubular goods, a practice that dramatically drives down prices.

 

Also, in the case of U.S. Steel, chairman and CEO John Surma said last month the company expects third-quarter results for its Tubular segment to improve compared to the second quarter. That's a positive indication for the company's two pipe mills in Lorain that supply the oil and gas market.

 

“Shipments are expected to increase to support anticipated drilling activity and average realized prices are projected to be comparable,” Mr. Surma said.