More Downside for Steelmaker

The company expects a sequential price drop of 5% in its ferrous materials business and a demand fall-off of 20%. Operating income in its recycling business is expected to drop 60% to $4 a ton.

In Schnitzer’s auto parts business, the company expects a sequential drop of 5% in revenues and an 8% decline in margins, while the steel manufacturing business is expected to perform inline with the fourth quarter of 2012.

While Schnitzer’s business is less dependent on demand for finished steel products, today’s announcement is another indicator of continuing tough times for steelmakers like United States Steel Corp. (NYSE: X), Nucor Inc. (NYSE: NUE), ArcelorMittal (NYSE: MT), AK Steel Holding Corp. (NYSE: AKS) and Steel Dynamics Inc. (NASDAQ: STLD).

In October, capacity utilization in the industry fell to 76.5% worldwide, which has caused prices to move up slightly. But as prices rise, more spare capacity will be put back to work, keeping price rises modest.

Shares of Schnitzer Steel are down about 3.6% today at $27.08 in a 52-week range of $22.78 to $49.35.

Paul Ausick