(Adds peers' earnings, CEO comment, updates shares)
By Matt Daily
NEW YORK, July 29 (Reuters) - U.S. Steel Corp (X.N) posted sharply higher-than-expected quarterly earnings on Tuesday on surging steel prices and forecast a strong upcoming quarter, sending its shares up more than 16 percent.
The results from the second largest U.S. steelmaker could set the tone for the sector this week, with international peers ArcelorMittal ISPA.AS, Nippon Steel (5401.T), JFE Holdings (5411.T), Kobe Steel (5406.T) and Tata Steel (TISC.BO) due to report earnings later this week.
Global demand for steel has remained strong so far this year, boosting steel prices nearly 50 percent despite soft economic growth and the turmoil in the financial markets. The weak U.S. housing sector has not affected demand, since that market is not a major steel purchaser.
Surging prices for metallurgical coal and iron ore, key raw materials for steel production, are likely to begin squeezing margins for steel companies, but U.S. Steel has said it was not as exposed to iron ore pressures as its peers in North America, where it controls much of its own production.
In a note to investors, Credit Suisse analysts said Pittsburgh-based U.S. Steel posted "a blow-out" quarter on the back of strong prices.
"With U.S. Steel's indication that Q3 should be even better then Q2, we believe the estimate revisions for (the second half of 2008) and 2009 will be significant," Credit Suisse said.
Keybank Capital Markets analyst Mark Parr, who has a "buy" rating on the stock, said U.S. Steel's flat-rolled, European and tubular businesses had all topped market expectations.
"The earnings are in line with the profitability we had built into our second-half outlooks," he said. "They're just occurring a little bit earlier."
Net income rose to a record $668 million, or $5.65 per share, from $302 million, or $2.54 per share, a year earlier.
Excluding an inventory-related charge, profit was $5.68 per share, easily beating the analysts' consensus forecast of $3.84, according to Reuters Estimates.
U.S. Steel sales also set a quarterly record, rising 60 percent to $6.7 billion and topping forecasts of $5.9 billion.
"We expect another excellent quarter with continued earnings improvement as price increases implemented during the second quarter and early in the third quarter are expected to improve average realized prices for each of our reportable segments," Chief Executive John Surma said in a statement.
Despite worries from some analysts about the downturn in demand from car makers, Surma told a conference call the company had benefited from order cancellations, since that steel had subsequently been resold at higher prices than called for under the original contracts.
"That has been a net positive for our average realized prices for the year and certainly was in the second quarter as well," he said.
Only U.S. Steel Europe is likely to see a dip in profits in the third quarter, as rising costs and planned maintenance cut into margins there.
During the second quarter, income from operations jumped to $959 million, or $136 per ton, from $434 million, or $79 per ton, a year earlier.
Profits jumped more than fivefold to $478 million for flat-rolled steel and nearly doubled to $177 million for tubular products, while U.S. Steel Europe posted more modest earnings growth of 22 percent to $298 million.
U.S. Steel shares closed up 14.1 percent at $165.76 on the New York Stock Exchange after rising as high as $169.48, bringing their year-to-date gain to 37 percent.
That compares to a 14 percent decline in the Standard & Poor's 500 index .SPX. (Reporting by Matt Daily, editing by Lisa Von Ahn and Maureen Bavdek)