Ahead of the Bell: Analyst sees lower steel prices

In an investor note, analyst Sal Tharani slashed his 2009 price estimate by 30 percent, saying hot rolled coil steel should average around $677 per ton for the year and will likely bottom out at $650 per ton early in the first quarter.

Tharani wrote that prices are "coming down hard and fast" as the economies of the United States and Europe deteriorate and growth slows in China.

"The rug has been pulled out from under the steel sector," he wrote.

Tharani downgraded AK Steel Holding Corp. to "Sell" from "Neutral," and Steel Dynamics Inc. and United States Steel Corp. were downgraded to "Neutral" from "Buy." He upgraded Commercial Metals Co. to "Buy" from "Neutral."

Despite the fall in prices, Tharanai said there are some possible buying opportunities, though timing the stocks could be difficult given the volatility in markets. Global production cuts could give some stability to prices, including major cutbacks announced by Chinese steel producers, leading the sector to possibly bottom out in the next several months.

"Although we don't expect any near-term catalysts, valuation of some steel stocks is hard to ignore," he wrote.

Shares of many steel companies have plummeted in recent months on a sharp contraction in steel prices that peaked around July.