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On Jan 11, Zacks Investment Research downgraded specialty materials company Allegheny Technologies (ATI - Analyst Report) to a Zacks Rank #5 (Strong Sell).

Why Downgraded?

Allegheny posted a loss in the third quarter of 2013 due to lower sales and weak pricing. Charges associated with the sale of businesses also weighed on the company’s bottom line. Loss for the quarter was narrower than the Zacks Consensus Estimate while sales missed the same. Allegheny expects business conditions to remain challenging in the fourth quarter and potentially in 2014 due to U.S. debt ceiling and other fiscal policy issues.

Allegheny is contending with a soft economy and raw material cost pressures. Reduced raw material surcharges and low base prices of standard stainless products impacted the results of its key Flat-Rolled Products segment. Weak demand and increased Asian imports are contributing to lower stainless steel sheet plate prices.

The demand for Allegheny’s standard stainless products has been hit by rapidly falling raw material surcharges, which resulted in customers delaying purchases. In addition, the same factors appear to be influencing the short-term demand for some high-value products from key end-markets as many customers are being cautious and keeping inventories lean.

Allegheny does not see any significant improvement in global demand in the Flat-Rolled Products segment in the near term due to lack of mega projects. The business environment is expected to remain challenging through the final quarter of 2013 given the uncertain economic environment.

Weak demand from jet engine aftermarket and nuclear energy is expected to continue to affect Allegheny’s results. Demand for forging from construction and mining markets also remains soft.

Other Stocks to Consider

Other companies in the steel and related industries worth considering include Companhia Siderurgica Nacional (SID - Analyst Report), ArcelorMittal (MT - Analyst Report) and United States Steel Corp. (X - Analyst Report). While Companhia Siderurgica and ArcelorMittal carry a Zacks Rank #1 (Strong Buy), United States Steel holds a Zacks Rank #2 (Buy).

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