Steel soars on reports of deal with Chrysler

August 02, 1994|By Bloomberg Business News

NEW YORK -- U.S. steel stocks surged to a 34-year high yesterday amid expectations that a number of companies will see unexpectedly large prices later this year and in 1995.

Steel stocks were the best performing group in Standard & Poor's 500 index, rising as much as 3.51, or 3.8 percent, to 95.90. It was the highest level since January 1960.

The rally came after analyst reports that integrated steel producers won an estimated 10 percent price increase on steel sold to Chrysler Corp.

Chrysler spokesman Steve Harris said talks with steelmakers are continuing, and declined further comment.

By setting a benchmark price for other companies and by improving the outlook for higher prices and earnings in 1995, "the Chrysler negotiations are the key event for these stocks," said Michael Gambardella, analyst at J. P. Morgan Securities Inc. Before the Chrysler agreement, most industry analysts forecast that steel prices would rise by 3 percent next year, Mr. Gambardella said.

Of the six stocks in the S&P Steel Index, Bethlehem Steel Corp. rose $1, to $23.25, Nucor Corp. surged $1.875, to $70.875, Inland Steel Industries Inc. rose $2.25, to $40.25, USX-U.S. Steel Group Inc. climbed $1.625, to $39.125, Worthington Industries increased 75 cents, to $21.25 and Armco Inc. added 25 cents, to $6.25.

Bethlehem Steel employs 5,500 at the Sparrows Point steel mill in Baltimore County. Armco owns Eastern Stainless Corp. in Baltimore County.

Among stocks not included in the index, LTV Corp. jumped $1, to $19.75, National Steel Corp. added $1.75, to $21.625, Lukens Inc. rose $1.375, to $35.25, and Carpenter Technology rose $3, to $63.375.

J. P. Morgan repeated a "strong buy" recommendation on National Steel yesterday, as well as "buy" ratings on LTV, Bethlehem Steel, Inland Steel and U.S. Steel.

Meanwhile, Anthony Carpet, analyst for Goldman, Sachs & Co., raised his earnings estimates for four major steelmakers based on signs that the nation's automakers would pay more for steel.

"Increases of 10 percent on the Chrysler contract should lead to at least an average 50 percent increase" in steelmakers' earnings above what analysts were already forecasting for 1995, Mr. Gambardella of J. P. Morgan said.

Sunday was the expiration date for Chrysler Corp.'s supply contracts with all of the above companies except for National Steel, whose contract runs until the end of the year.

The Chrysler talks could also influence the outcome of similar negotiations with General Motors Corp. and Ford Motor Co., when their contracts expire at the end of 1994, Mr. Carpet said. He said he now expects steel prices to rise 5 percent on average in 1995, up from his previous forecast for a 3 percent increase.

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