Global consolidation within the steel industry is the single most important reason domestic steel companies and their facilities are surviving and thriving, according to industry analysts.

Companies' names may change as they consolidate, but mergers and acquisitions help sustain financial security for them and their employees, the analysts said.

"The industry's dramatic consolidation helped it overcome two periods of excessive inventory in '04 and '06, when there was weak domestic demand," said Mark Parr, managing director of Equity Market Research for Key Banc Capital Markets Inc.

Even as the United States faces a recession, earning outlooks for its steel companies are as good as they've ever been, he said.

"In 2008, U.S. steel production should increase 5 to 10 percent, even if domestic demand falls 5 percent," Parr said at a recent steel conference in Chicago. "In 2008, we should see record earnings, better sustainability and pricing as global market consolidation continues."

Daniel Schweller, of Deloitte & Touche LLP, said consolidation has allowed companies to operate in a rational manner, shuttering or expanding a portion of production, depending upon orders and outlook.

"The operator of a single mill must keep the mill at full capacity, or perish," Schweller said. "He can't adjust production to demand."

The domestic industry's inefficient excess capacity, additional capacity in developing global markets, such as China and Russia, plus the fragmentation of the industry, are among factors that led to the bankruptcies of more than three dozen U.S. steel companies -- including LTV Steel Co., Bethlehem Steel Corp. and National Steel Corp. -- from 1999 to 2002.

The restructuring and mergers that followed allowed mills to act rationally, analysts said. In 2005, when steel demand slowed, the larger mills varied their production instead of lowering their prices, Schweller said.

"Consolidation in the industry will continue and create value," he said. "Consolidation leads to a rational industry."

Still, global steel consolidation has a long way to go, Schweller said.

Consolidation among the global auto industry's original equipment manufacturers is at a point where the top 10 companies, by volume, control 68 percent of the market. In the iron ore industry, the top three producers have 75 percent of the market share.

The world's top 15 steel producers -- of more than 1,000 -- represent only 35 percent of global steel capacity, led by Luxemburg-based ArcelorMittal, which controls about 10 percent of the market, Schweller said.

In the United States and Western Europe, mergers and acquisitions mean the five largest steelmakers now account for 70 percent of supply in each region. By contrast, the Chinese steel industry is highly fragmented, with the top five producers producing about 20 percent of the country's supply, with its total supply lower than its demand.

However, Zhang Xiaogang, chairman of the China Iron & Steel Association, recently said China's steel sector is expected to have unprecedented mergers and acquisitions in the next three years.

"Many small steel mills will have to be amalgamated into big ones or disappear," he said.

Steel analyst Charles Bradford, president of New York-based Bradford Research, said industry consolidation is "good by every measure."

"It's led to more stable pricing on the downside," he said.