From Canaccord Adam's Daily Newsletter Wednesday August 12, 2009
SECTOR UPDATES
Sustainability
Eric Prouty
Comment: Thoughts from the Scrap Heap
The American Iron & Steel Institute (AISI) reported that for the week ended August 8, domestic steel output rose to 1.277M tons, up 0.6% from the prior week. AISI also reported that capacity utilization increased to 53.5%, up from 53.2% in the prior week. Notably, both steel output and capacity utilization are now at their highest levels of the year (though down substantially from last year's levels). We conclude that AISI production data and utilization data is positive for steel industry-related companies. We specifically highlight GrafTech (GTI: NYSE: $14.80 | BUY) and Horsehead Holding (ZINC: NASDAQ: $11.17 | BUY). As steel mills continue to ramp up production, they will require more graphite electrodes, benefiting GrafTech, in our view. Similarly, production increases should benefit Horsehead, which obtains its raw material -- electric arc furnace dust -- from domestic mini-mills. Greater end-market demand for steel should also translate into increased demand for zinc, which is used in the galvanizing process. We reiterate our BUY ratings on GrafTech and Horsehead.