Shares of such steel companies as Nucor Corp and U.S. Steel Co fell sharply in recent months after steel buyers withdrew orders because of frozen credit markets and the slumping U.S., European and Chinese economies.

Service companies, which have been tapping their own inventories to supply construction customers rather than making purchases from the producers, are likely to increase their orders as their supplies shrink, one analyst said.

"I think a more timely catalyst (for steel company stocks) is not necessarily the stimulus package, but these service centers have pared down their inventories to an unprecedented level," said Bob Richard, analyst with Longbow Research.

Still, the U.S. industry is pressing the incoming Obama administration for a public works plans that would reach $1 trillion over two years to help revive steel demand.

Daniel DiMicco, chairman and chief executive of Nucor, told the New York Times the industry was asking the incoming administration to "deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a 'buy America' clause."

The industry supports building mass transit systems, bridges, electric power grids, schools, hospitals and water treatment plants -- all of which would require large amounts of steel.

Richard said he had "buy" ratings on both U.S. Steel and Nucor and believed companies such as Brazil's Gerdau North American operations would benefit from any upturn in demand from a government stimulus package.

Independent analyst Michelle Applebaum said shares of Nucor, Steel Dynamics and Reliance Steel might outperform the sector, especially since those companies had already warned they would have weak fourth-quarter earnings.

"For the rest of the industry, there's more bad news to come," she said.

Obama, who is to be sworn in on January 20, has not revealed details of his soon-to-be-announced plan for spurring the weakest economy since the Great Depression. Aides have indicated most of the package will probably go into infrastructure spending rather than tax breaks.

Since September, U.S. steel output has plunged about 50 percent to its lowest point since the 1980s, largely because construction and auto production have fallen sharply.

The fall-off in production of appliances, machinery and other electrical equipment has also reduced steel orders, sending the price of a ton of steel down by half since late summer.

The Standard & Poor's index of steel companies <.GSPSTEEL>, which fell 65 percent from its peak in May through the end of 2008, was up 4.6 percent on Friday to 135.6, led by gains in Allegheny Technologies , Nucor and U.S. Steel.

(Reporting by Matt Daily in New York and Jim Wolf in Washington; editing by Todd Eastham and Steve Orlofsky)