Shares of steel makers came under pressure on Thursday after Steel Dynamics Inc.(NASDAQ: STLD), the sixth-biggest steel maker in the United State said that it expects to post a loss in the first quarter amid slumping steel demand.

For the first quarter of 2009, the company now expects to report a loss in the range of 40 cents and 45 cents a share, compared to its earlier estimate of a profit of 5 cents to 10 cents a share

The company attributed the dismal outlook to weaker than expected demand, weakness in metal recycling segment and non-cash inventory adjustments.

Investors were particularly spooked after Steel Dynamics' CEO Keith Busse issued a grim outlook for the entire year 2009.  In a statement, Busse said "The outlook for the remainder of 2009 remains clouded."

Industry experts point out that steel makers have been forced to cut down on utilization rate amid bleak demand outlook. Citi (NYSE: C) Investment Research analyst Brian Yu estimates that utilization rate at major US steel makers declined to 43% in current quarter from fourth quarter of 2008.

Moreover, it is being pointed out that apart from Steel Dynamics, other steel makers like Nucor Corp. (NYSE: NUE), United States Steel (NYSE: X) AK Steel Holding Corp. (NYSE: AKS) are also expected to feel the heat.

JP Morgan (NYSE: JPM) cautioned on Thursday that steel makers may violate their debt covenants if steel prices fail to recover this year. Similarly, on Wednesday, Goldman Sachs (NYSE: GS) said "We believe that we have reached a point whereby continued demand weakness and the lack of orders could threaten the supply discipline that has hitherto cushioned steel prices from downside. The firm added "Year-to-date market returns indicate that AK Steel, U.S. Steel and Allegheny Tech (NYSE: ATI) will face more headwinds over coming years due to further pension underfunding," Goldman added. "We believe some firms, like Worthington Industries (NYSE: WOR), may not be able to continue their dividends due to weak market conditions and that some companies (AK Steel, Steel Dynamics, U.S. Steel, Worthington, Gibraltar Industries (NASDAQ: ROCK) could breach covenants later this year, which would require them to renegotiate with their banks and could increase financing costs."

Steel prices have more than halved since mid-2008 amid a deepening economic recession. Prolonged slump in auto industry and housing market has made matter worse for the industry. Longbow Research analyst Bob Richard estimates that demand for steel dropped by 9% in February as compared to January and that demand had fallen 36% from a year ago. Steel producers have been also negatively impacted by a weakening Chinese demand.

Shares of Steel Dynamics fell $1.33 or or 15.56% to $7.22 on Thursday.