The cycle changes? Steel and telecom industries report strong profits

The global economy has not thawed after widespread fear of recession and the constant vigilance of ratings agencies froze activity months ago. To protect itself against problems is complicated, but major companies within cyclical sectors such as steel and communication are typically an excellent barometer of whether things are worsening or not. That is, they are activities that could help us anticipate 2012 profits. Experts forecast that next year the ten largest companies (based on market capitalization) from both the steel and telecom sectors will successfully increase profits by 40% and 10% on average, respectively.

In the steel companies' case, the slow recovery of the economy and declining demand for steel have weighed down a sector in which American and Japanese companies have the strongest voice. That said, an Australian company has garnered the most analyst optimism. So much so that the analyst consensus view according to FactSet is that Fortescue Metals will double expected earnings for this year, closing 2012 with 1,560 million euros instead of the 745 euros that were originally predicted.

After this Australian company, the American firm Allegheny Technologies (ATI) and the Japanese Sumitomo Metal are the two others that have received improved profits estimations.

United States experts are confident even though the company has given up fourteen more times what its reference index did (the S&P 500 has lost around 2% and ATI has fallen back 28%) during the same period of time. The company is diverse, which is one of its strong points. It produces special metals for aerospace, defense, petroleum and gas, chemicals, electric energy and medical industries. This diversification and negative stock performance are two facts that lead experts to believe that the company will improve upon its 2011 performance estimations by 67%, posting upward of 200 million euros in gains.

Profit improvements for the Japanese companies Sumitomo Metal and Kobe Steel should also be notable. The first, for whom 52% increases are expected, should post profits of 730 million euros and continue with its plans to merge with the Japanese titan Nippon Stell in October of 2012. This deal would make the new company the second global steel group after ArcelorMittal to reach a stock market capitalization above 20 billion euros. For their part, experts predict that Kobe Steel will close the year with around 270 million in net profits and that the figure could surpass 365 million for the year. Incremental improvements for other major steel companies will be less than 35%.