VANCOUVER, Oct 18 (Reuters) - Canadian steel maker Stelco Holdings Inc's planned IPO could be a tough sell as it faces the twin headwinds of slowing North American auto sales and the uncertain impact of trade talks, even as it looks to cash in on a rebound in steel prices.
Stelco also needs to regain investor confidence just months after emerging from its second bankruptcy in 13 years, analysts and investors said, as its new owner seeks to raise $150 million by selling a stake in the restructured, almost debt-free company.
Stelco, now owned by U.S. private equity group Bedrock Industries, filed in late September for the initial public offering and is now marketing it.
If the effort is successful, it would be the world's biggest steel IPO since 2010, when Indonesia's Krakatau Steel raised $300 million in its offering, according to Thomson Reuters data. Krakatau's stock has nearly halved since then.
While global steel prices have jumped 160 percent since end-2015 as China, both the world's top steel producer and consumer, shut capacity in an environmental crackdown, sales of North American automobiles have been mostly weak this year.
Stelco, which operates two steel-processing facilities in Ontario, is targeting the auto sector for growth with plans to lift production of lightweight, higher-strength steels that automakers are increasingly seeking for better fuel economy, it said in its prospectus.
But high automobile inventory levels and record consumer discounts, are signs that North American auto sales could slow.
"That is not good for steel mills," said Gordon Johnson, an analyst at Axiom Capital Management.
The automotive market absorbs around 40 percent of North American-produced steel sheet, Stelco's chief product, said KeyBanc Capital Markets analyst Philip Gibbs.
Competition for auto business is stiff, with the likes of ArcelorMittal B.V., the world's biggest steelmaker, also chasing this higher-margin business. Last year, sales to automotive customers made up only 3 percent of Stelco's sales, down from 37 percent in 2006.
"What you do have now is every steel company really trying to figure out how to capture more and more of that market," said Clarksons Platou analyst Lee McMillan.
Stelco and Bedrock both declined to comment. In its IPO filing, Stelco said its competitive strengths included being one of North America's lowest-cost producers and being near customers and suppliers.
Meanwhile, the renegotiation of the North American Free Trade Agreement adds a layer of uncertainty for investors in steel companies in Canada and Mexico as U.S. protectionism increases under the Trump administration.
"Trying to predict what this current administration is going to do is extremely difficult," said Johnson.
Rising steel prices have lifted steel companies' profits and shares. Stelco made a C$61 million ($49 million) operating profit in the six months to end-June compared with a C$36 million loss in the same period last year.
ArcelorMittal's stock is up 170 percent, United States Steel Corp is 240 percent higher and Nucor Corp 30 percent firmer, gains that make it too late to invest in steel stocks, some investors say.
"You buy these companies when they are losing money. Once they are making money, to me investors have missed a large part of the cycle," said Lorne Steinberg, president of Lorne Steinberg Wealth Management.
$1 = 1.2479 Canadian dollars Reporting by Nicole Mordant in Vancouver; Additional reporting by Susan Taylor in Toronto; Editing by Denny Thomas and Leslie Adler