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Market Scan
Stocks Get Boost From Natural Gas Prices
Tom Van Riper, 10.21.05, 3:13 PM ET

Friday's down market wasn't knocking down shares of steel companies, which got a boost from a dip in natural gas prices and an improved economic outlook.

Both Reliance Steel & Aluminum (nyse: RS - news - people ) and Chaparral Steel (nasdaq: CHAP - news - people ) were trading more than 4% higher at midday, with AK Steel (nyse: AKS - news - people ) and Steel Dynamics (nasdaq: STLD - news - people ) also higher. Industry giant U.S. Steel (nyse: X - news - people ) was up slightly after slumping for the past month on higher raw materials costs.

Reliance was also helped by its third-quarter earnings report, in which it said profit jumped 12% from last year to $49.4 million.

Prices of natural gas futures, a major cost component of steel, were off 18 cents to 12.78 BTUs.

Also on Friday, Lehman Brothers hiked its outlook for economic growth in early 2006, citing strong readings on jobs, industrial production and core retail sales after factoring out the negative short-term effects of Hurricane Katrina.

As a cyclical industry that produces material for big items like autos and planes, steel's fortunes are closely tied to the direction of the economy.

Lehman economist Ethan Harris predicts the economy will grow at a 3.5% annual clip during the first quarter of 2006, up from his earlier 3.25% projection.

"The combination of still-strong growth and rising inflation has prompted a string of hawkish Fed speakers all arguing strenuously for the need to keep inflation contained," says Harris, who thinks the Fed will raise its key rate to 4.75% from the current 3.75% by mid-2006.