Sector Snap: Steel producers' shares retreat

The Institute for Supply Management said Wednesday that its index of manufacturing activity last month fell to 43.5 from August's 49.9. It was worse than economists' prediction of 49.5, according to the consensus estimate of Wall Street economists surveyed by Thomson/IFR.

A reading above 50 signals growth. September's reading fell to its lowest level since October 2001, immediately after the Sept. 11 attacks.

"The headline ISM has plunged into recession territory," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The index has been hovering on what economists call "the boom-bust" line for most of the year, but this is the first time it has dropped significantly.

The survey of purchasing managers found new orders fell to 38.8 in September from a reading of 48.3 in August. Employment, deliveries, inventories and manufacturers' order backlogs also fell.

Industries reporting contraction include apparel, furniture, machinery, transportation equipment and electrical appliances.

Meanwhile, KeyBanc Capital Markets steel analyst Mark Parr warned in a client note of challenges for the rest of the year and into 2009.

"The (decline) in ferrous scrap pricing and the fragile state of domestic financial markets has likely further reduced buying momentum for steel, while steel equity values have collapsed in concert with most other basic materials-related equities," he wrote.

"Investor focus will likely return to the uncertainty around timing of a Chinese industrial rebound, the true magnitude of slowing global and domestic growth, and potential implications for steel pricing after the (decline) in ferrous scrap resource costs."