(RTTNews) - Wednesday, KeyBanc Capital downgraded United States Steel Corp. (X: News ) and AK Steel Holding Corp. (AKS: News ) shares to Hold from Buy.

The brokerage widened its 2009 loss per share estimate for X to $10.30 from $9.71, and lowered its 2010 EPS estimate to $2.00 from $3.65. The brokerage widened its 2009 loss per share estimate for AKS to $0.85 from $0.75, and lowered its 2010 EPS estimate to $1.20 from $1.80.

Analyst Mark Parr is concerned the rate of real economic recovery in North America is occurring too slowly relative to current market expectations. Potential for further declines in ferrous scrap prices over the next couple months is supported by the recent $30/tonne decline in export scrap pricing.

The analyst said that domestic mills and export buyers remain on the sidelines, likely dampening the ability to substantially maintain or raise hot-rolled pricing realizations over the near term despite low supply chain inventories.

While the analyst noted exceptional maintenance of more rational mill supply discipline throughout the cycle, he also noted supply was essentially restored in line with real economic demand throughout third quarter of 2009, putting sole dependence on true economic recovery to support demand related pricing upside.

Regarding current thesis, the analyst noted fourth quarter earnings outlook commentaries by AK Steel and United States Steel appear somewhat disappointing given strong sequential flat-rolled shipment increases on top of strong 40%+ third quarter of 2009 sequential volume recoveries. The outlooks clearly imply profit is very levered to pricing.
The analyst noted that with a more subdued pricing recovery unfolding, profit recovery will likely also be more gradual in nature. If sub-50% utilization was the problem, recovery to 65-70% capacity utilization in 2010 may not be adequate to support real pricing/profit recovery momentum. Accordingly, the analyst downgraded his ratings on X and AKS to Hold.

Although the analyst views each as early cycle beneficiaries of any meaningful increase in real demand and entities with solid financial footing, the increasing likelihood of a prolonged economic recovery has moved him to the sidelines for the time being.

The analyst also noted service center and end user re-stocking momentum may be hampered by continuing lack of credit availability. In the analyst's view, these issues put a premium on companies that are nimble, low-cost producers and those in place to support sporadic levels of demand as the recovery unfolds.

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