For the first time since an orgy of bankruptcies, restructurings and mergers at the dawn of the century produced its brightest days in decades, clouds are darkening the steel industry's horizon.

	Online Graphic See a graphic that shows steel prices since 1995.

Prices are down sharply from third- quarter highs. Inventories at processors and distributors, one of the industry's largest customers, rose nearly 1 percent in April, reversing an encouraging trend of declines. Imports are up 20 percent over year-ago levels. And on Wall Street, despite a bounce Friday based on favorable analyst comments, steel stocks have given up much of the ground they gained in recent years.

After quadrupling the previous two years, shares of U.S. Steel are off 21 percent this year. Mittal Steel, the world's largest producer thanks to its purchase of International Steel Group of Richfield, Ohio, has seen its shares slide 35 percent.

Shares of so-called minimills, whose operations are based on scrap rather than iron ore, have held up better because falling scrap prices lower the firms' costs. The biggest, Charlotte, N.C.-based Nucor is, up 3 percent.

In the past, such downturns in the cyclical industry were frequently referred to as "death spirals." Faced with falling demand and high fixed costs, steelmakers tripped over each in order to keep their mills running full. The vicious price wars only sent prices down farther and faster. This time around, however, many forecasters believe things may be different.

"People are sick of the steel industry filing for bankruptcy every time there's a bad cycle. Steel executives are sick of it, too," says Fitch Ratings analyst Monica Bonar. "They're not going to allow an oversupply situation where people can pick up cheap steal."

Now that production is concentrated in the hands of fewer players, it's easier for steelmakers to fine-tune production to match demand by temporarily idling plants.

This month, U.S. Steel announced it would take down its biggest North American blast furnace, at its Gary (Ind.) Works, three months early for scheduled improvements.

There also will be smaller, shorter outages at several other mills, says spokesman John Armstrong.

Mittal has taken down furnaces at mills in Cleveland and outside Chicago.

On Friday, it idled a blast furnace at the former Weirton Steel plant, acquired as part of the ISG purchase. The outage at the West Virginia operation will last at least five days, and a one-week vacation is planned for the mill at the end of July.

"They have not continued to try to pound tons in the market," says KeyBanc Capital Markets analyst Mark L. Parr. "Consolidation was something that people hoped would create more supply discipline in a down cycle. That's clearly the opportunity at this point."

Discipline among steel buyers didn't prevail last year.

Pent-up demand in China caused a sharp run-up in prices for iron ore, scrap and other raw materials used to make steel. It also raised fears of steel shortages, a dilemma that was inconceivable just a few years earlier. The combination of those two forces led steel users to order much more steel than they needed.

"Last year's excesses became this year's excess inventories," says Bradford Research's Charles Bradford. "Prices are weakening and they're weakening each week some more."

Now distributors are working off those bloated inventories. When the year began, many analysts expected the process to be completed by the end of the first or second quarter.

When the Metals Service Center Institute reported its members' inventories rose 0.7 percent in April, it became obvious more time is needed to rectify the imbalance. Merrill Lynch analyst Dan Roling estimates it could take three or four months.

Scrap prices also continue to decline, typically an indicator of where steel prices are headed. Bradford believes some steel users will delay ordering, knowing they'll be able to purchase for less later based on falling scrap prices.

The big question is where prices will stabilize.

Bonar expects prices for hot-rolled sheet steel, currently about $540 per ton, will stabilize somewhere between $400 and $500 per ton. The commodity product, used in construction, appliances and a host of other applications, topped $750 per ton last fall after hitting $210 per ton at the end of 2001, according to Purchasing Magazine.

Depending on where prices settle, what the industry may be facing is a recession that, by historical standards, will be mild.

While the traumatic downdrafts of the past still give some industry observers the jitters, hope remains for a soft landing. On Friday, Roling told clients the recent pullback in steel stocks makes them very attractive, identifying U.S. Steel and Nucor as his favorites.

KeyBanc's Parr also remains upbeat.

"Nothing is in a state of collapse or panic," he says.