NEW YORK (AP) -- U.S. Steel will face more intense completion with demand from China slowing and more pressure on margin because of raw material costs, according to Nomura Equity Research. Shares fell more than 3 percent and there was a broad sell-off in the sector as well.
THE SPARK: Nomura analyst Curt Woodworth lowered his rating on U.S. Steel to "Neutral" from "Buy" Thursday, and his share price target to $20 from $32. He also cut some earnings estimates.
THE BIG PICTURE: The U.S. steel industry has seen weak demand from manufacturers amid slowing global economic growth, particularly in China. That has created ample inventories of steel.
The domestic steel industry has a limited ability to lower raw material costs, which has kept prices for U.S. steel products higher, Woodworth said.
THE ANALYSIS: The steel industry will face more competition over the next several months as a result of the changing marketplace, Woodworth predicted.
U.S. Steel's "earnings power is most eroded in a world of lower raw materials prices given its captive iron ore and self-sufficient coke (coal) position," he wrote.
Woodworth lowered his third-quarter per share estimate to a loss of 5 cents from break-even. Analysts surveyed by FactSet have predicted third-quarter earnings of 2 cents per share.
For the full year, Woodworth predicted earnings of $1.50 per share, compared with his previous estimate of $2.05 per share. Analysts have forecast earnings of $1.57 per share.
Woodworth lowered his 2013 estimate to 40 cents per share from $3.30. Analysts predict 2013 earnings of $2.37 per share.
SHARE ACTION: In morning trading, shares of U.S. Steel fell 71 cents, or 3.4 percent, to $20.15. In the past 52 weeks, the price has ranged from $17.67 to $32.52 per share.
In other trading, shares of AK Steel Holding Corp. dropped 21 cents, or 3.8 percent, to $5.34; ArcelorMittal fell 40 cents, or 2.4 percent, to $15.98; and Nucor Corp. was down 35 cents to $39.23. Steel Dynamics Inc. shares dropped 13 cent to $11.99.