Universal Stainless & Alloy Products (USAP) posted a 42.7% gain in earnings in Q2 2010, citing strong market demand for steel.

Q2 earnings were $51.3M compared with $34.7M in Q1.

USAP manufactures and markets semi-finished and finished specialty steel products and is heavily exposed to the manufacturing sector.

The current slow-down in the Chinese economy is expected to weigh slightly on the steel industry as a whole, but USAP is well positioned to continue its climb.

Analysts currently expect earnings-per-share growth rate to be 7.2% over the next five years in the steel industry. USAP’s projected EPS growth rate is 16%, which means USAP is expected to outperform the broader steel industry by 8.8% over the next five years.

USAP is currently included in Forbes Top 200 Small Companies, which means there is plenty of market share to expand. Although the company is well-established, its current price may still be a good opportunity for longer-term investors seeking to invest in small cap companies with large growth potential.

As economic recovery continues to strengthen through the H2 2010, demand for USAP steel materials should increase.

USAP is not a huge exporter of steel to foreign markets; thus, they are not as subject to the wild volatility that currency trading tends to have on some companies exposed to foreign currencies.