Horsehead Holding's [Ticker: ZINC] volatile seven-month ride on Wall Street has left shares of the Monaca-based zinc producer nearly 13 percent lower than their $18 debut price in August.

Shares closed Friday at $15.70, dropping $1.40 on the day but managing a 35-cent gain for the week. They are ahead of the $11.20 low hit on Jan. 23, but have retreated from a high of $26.14, achieved in late September.

The big swings correlate with the movement of zinc prices. Large cyclical price gyrations are a fact of life for metals producers, and Horsehead is no exception. Zinc plummeted to 35 cents a pound in 2002, one of the main reasons the company's predecessor, Horsehead Industries, ended up in bankruptcy. It was rescued in December 2003 by an affiliate of Sun Capital Partners, a private investment firm that has invested in and managed more than 185 companies since it was founded in 1995.

Three years after Horsehead was reorganized, zinc prices hit record levels, closing 2006 at nearly $2 a pound, having more than tripled in price since the end of 2004. The metal is currently priced at about $1.20 a pound.

Horsehead is one of the world's largest zinc recyclers. About 60 percent of its feedstock comes from EAF dust, waste generated by the electric arc furnaces that steelmakers use to convert scrap into new steel. Much of the scrap is galvanized with a coat of zinc.

Mills can pay a fee to dispose of the dust in a landfill and face potential environmental issues or pay Horsehead, which extracts the zinc. Along with recycled zinc collected from other sources, Horsehead processes the metal and sells it to customers that produce steel, tires, alkaline batteries, pharmaceuticals and other products.

According to documents Horsehead filed in connection with its initial public offering last year, U.S. steel furnaces generate nearly 1 million tons of the material and landfill about a third of it. The company estimates it recycles more than half of the furnace waste.

Last week, Horsehead reported that shipments fell 3 percent last year to 152,745 tons. But higher prices increased sales by 10 percent to $545.6 million and profits jumped 67 percent to $90.7 million, or $2.85 cents per diluted share. The results included hedge-related expenses of $2.2 million, or 7 cents per share.

The company ended the year with $76.2 million in cash and $200,000 in debt. Institutions own about 74 percent of the 35 million shares outstanding.

Horsehead is expected to earn $1.88 per share this year, according to Bloomberg estimates. Based on Friday's closing price, the shares are trading at about eight times expected earnings.

The company employs more than 1,000 at six plants in Pennsylvania, Illinois, Tennessee, Oklahoma and Texas. About 500 of them work at the Monaca facility, which features a coal-fired electric generating station that produces enough power to sell about a third of its 110-megawatt output to outside customers.

Expansion of the company's Rockwood, Tenn., plant will expand its EAF dust recycling capability by 15 percent. Horsehead recently announced plans to build a new plant in the Carolinas after signing a 12-year contract to recycle EAF dust from three mills operated by Nucor, the leading U.S. scrap-based producer.

Predictions of softer zinc prices in coming years are weighing on the stock. Market analysts expect that China, which has aggressively increased production in recent years, will put the supply and demand equation out of kilter, leading to lower prices. Prices have rallied in recent weeks as electricity shortages in China have curtailed zinc production but that hasn't changed the long-term forecast.

"We are not bullish on zinc prices being able to hold onto their current gains," Friedman, Billings, Ramsey analyst Amir Arif wrote in a note to clients last week. He believes that prices could start easing in the second quarter.

Citigroup metals analyst John Hill forecasts zinc prices will drift lower in coming years, dipping below $1 by 2012.

Given that consensus, Horsehead is taking precautions. It has locked in prices on 90,000 tons, or 60 percent of its estimated 2008 production, at $1 a pound and locked in another 45,000 tons at 90 cents a pound next year.

"These hedges will allow us to participate in any increase in the price of zinc while protecting us if the zinc prices decline below the strike prices," said President and Chief Executive Officer Jim Hensler.

Mr. Arif said Horsehead remained very sensitive to zinc prices. Despite their anticipated decline, he rates the stock "outperform," citing benefits from increased production, cost cutting and the hedging strategy.

"We continue to like the long-term (12 to 24 months) outlook," he wrote.

By way of disclosure, FBR was an underwriter for the August IPO.

Worries about the strength of the economy also will weigh on Horsehead shares. Given Wall Street's 300-plus-point drop on Friday, those concerns, as well as concerns about China's zinc output, will be on the minds of Horsehead shareholders for the foreseeable future.