ThyssenKrupp, Salzgitter bask in steel boom

By Christiaan Hetzner

FRANKFURT (Reuters) - ThyssenKrupp (TKAG.DE: Quote, Profile, Research) and Salzgitter (SZGG.DE: Quote, Profile, Research), Germany's two-biggest listed steelmakers, raised their profit forecasts on Thursday as they cashed in on growth in developing economies such as China, India and Russia.

Both reported strong quarterly earnings as their metals trading businesses rode a wave of higher prices for rolled and tubular steel, confirming Wednesday's bullish earnings news from independent distributor Kloeckner & Co (KCOGn.DE: Quote, Profile, Research) [nLD229351].

After initial gains, shares in ThyssenKrupp retreated to trade down 0.4 percent by 1340 GMT while Salzgitter came off session highs to trade up 0.4 percent.

"The market is still looking very short term and placing a very high risk premium on forward earnings," Credit Suisse analyst Michael Shillaker said, citing deep concern among investors about a darkening macroeconomic outlook.

He rates the sector "overweight."

The two steelmakers are grappling with sharp rises in costs for raw materials like iron ore, coking coal, and steel scrap. Salzgitter and ThyssenKrupp said these costs could not be passed on in full to customers at their flat steel businesses, where supplies are often governed by long-term contracts.

Salzgitter enjoys a natural hedge against rising energy prices since the bull market in oil and gas boosts investments in exploration and infrastructure that require steel tubes.

By comparison, ThyssenKrupp is exposed to the highly volatile stainless steel market, where earnings have slumped on the back of lower base prices and subdued demand from traders who postponed replenishing stocks in a bet that prices for nickel, a key raw material, would continue to fall.