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Recession? Steel Dynamics Says ‘No!’ (SLX, STLD)

April 20th, 2011

Steel Dynamics, Inc. (Nasdaq:STLD) surprised everyone with its first-quarter results Tuesday. And I mean everyone.

The Indiana-based steel manufacturer posted earnings per share of 46 cents, a nickel above the Street consensus call and even above the company’s own guidance. Management had been steering analysts toward an EPS range between 37 cents and 42 cents.

First-quarter EPS compares with 7 cents in the previous quarter and 29 cents a year ago.

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Steel Dynamics’ management attributed the boost in earnings to higher-than-expected net sales and operating income in the company’s Metals Recycling and Ferrous Resources group.

Despite the current weakness in nonresidential steel demand, company officials expressed confidence that overall steel consumption will increase throughout the year. The reason for the optimism? Growing backlogs in the company’s structural and rail division.

That seems to jibe with the latest industry numbers. Overall steel demand is on the rise according to Morgan Stanley data, reflected in a 4 percent increase in domestic steel product shipmentsto a daily average of 106,087 short tonsin March alone.

Steel Dynamics’ shares are now playing catch-up with the Market Vectors Steel Index ETF (NYSE:SLX)—of which it’s a componentafter lagging for most of the past 12 months.

Steel Dynamics, Inc.: May 2010 - March 2011

Now at the $18.50 level, STLD has been stair-stepping its way back from a 2008 slump that knocked $36 of the share price before bottoming near $5.

Despite the current optimism, share prices face some pretty stiff resistance overhead. Momentum and volatility have turned up, but closes above the $18.83 level are needed to convince traders that the February interim peak at $20.70 should be assaulted. A run-up failed in the first week of April as traders’ and investors’ convictions wavered ahead of the company’s earnings report.

On the downside, the stock’s 200-day moving averagenow at $16.46represents solid support.

In the intermediate term, $23 is the target for optimists, while a longer-range objective of $27 is supported by the company’s fundamentals.

Written by Brad Zigler From Hard Assets Investor

HardAssetsInvestor.com (HAI) is a research-oriented Web site devoted to sharing ideas about hard assets investing. The site has been developed as an educational resource for both individual and institutional investors interested in learning more about commodity equities, commodity futures and gold (the three major components of the hard assets marketplace). The site will focus on hard assets investing without endorsing or recommending any particular investment product.

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