Fireworks displays filled Quad-City skies a few weeks back. Fireworks could be about to return to steel pricing, too. Some will appreciate the new pricing and some will not, just as rain on the Fourth of July is wonderful for the farmer but bad for the parade organizer.

The steel pricing boom began in 2003, driven by incredible demand in Asia and a strengthening U.S. economy. Quad-City Times Key 15 member Ipsco’s net income has soared from about $1 million in 2003 to between $500 and $600 million the past couple of years. The price of Ipsco stock is up more than tenfold during the boom. Other area steel companies have enjoyed similar benefits. Of course, the big increases in steel prices have been a negative for many of our smaller local steel processors and even for larger area firms, such as Key 15 members HNI and Deere & Co. No market remains in a steady state for long and the current boom in steel profits will be threatened by oversupply, at least in some product categories, next year. The stock market already is discounting a modest slowdown, industry bankers warned at a recent steel conference in Manhattan.

The steel industry “is unique in its ability to destroy capital,” James Tumulty, vice president and head of high-yield trading at Raymond James, said at the conference co-sponsored by American Metal Market and World Steel Dynamics. The industry’s proclivity toward overproduction has collapsed prices and produced 43 separate steel market meltdowns, Tumulty contended. He warned that irresponsible producers developing new capacity could hurt the industry again. His concerns particularly relate to China.

Tumulty’s nail-biting relates to new capacity, which would be viewed negatively by investors because it would contribute to softer prices. Other attendees noted increased capacity coming out of China. The message to steel producers such as Ipsco was clear: “don’t flood the market with product.”

Bondholders were destroyed by past cycles of boom, then bust, and “if you are shareholders of a steel company that’s not making real money in this market, you are in a perilous position,” Tumulty said. His point is that the lack of profits at this stage in the economic cycle is a sign of serious problems in a sector in which investors are sitting on big gains since January 2003, even after recent weakness. The debt issues don’t apply to Ipsco, however, which has long since paid off all of its substantial bills and therefore doesn’t have any bondholders. Ipsco’s niche in tubular products also should help the company play defense.

It takes two sides to make a market, and not all are negative on the steel industry. Although the steel business will always be up and down, the good news is the trend toward consolidation, with the top five steel companies taking a 50 percent market share by 2011, argued Dieter Hoeppli, managing director at UBS Securities. He cited for comparison purposes the mining industry, which already has seen mass consolidation, and now is treated with greater respect by the investment community.

Ipsco’s stock price has been soft of late, falling about $10 per share from the $105 range it inhabited a few weeks ago. Whether or not the current level proves to be a good buying opportunity, clearly employees and management of the company have little to fear from a downturn. With the company’s fortress-like balance sheet and attention to cost control, Ipsco occupies a vastly better position than in previous downturns.

YRC: Labor relations great

A recent column cited analysts who say that YRC Worldwide, a less-than-truckload carrier operating out of the Illinois Quad-Cities, was pinned down under crossfire from a new competitive threat from Federal Express and faced a potential strike in 2008. One company official strongly disagrees on the strike issue, contending that labor relations at YRC Worldwide are excellent and that the Teamsters understand well the competitive situation faced by YRC.

This same official points out, by the way, that Yellow and Roadway merged as equals and not through an acquisition of Yellow by Roadway, as my column applied. He is correct.

Chad Bruso of Morgan Stanley wrote recently that YRC Worldwide seems to be experiencing larger-than-expected benefits from increases in fuel surcharges and the earlier timing of general rate increases in 2006 versus 2005. Bruso raised his second quarter earnings per share expectations on YRC to $1.57. He cautioned investors that the good news was probably temporary, as rising costs and softening freight demand hurt the industry as a whole in the second half of 2006. We’ll see.