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Uncertainty Reigns but Hope Remains in North American Steel Markets

12/06/2012 - Uncertainty, a slow recovery, and hope from the energy and automotive markets were the unofficial themes of CRU’s 6th North American Steel Conference held in Chicago, Ill., on 29–30 October 2012.

Uncertainty, a slow recovery, and hope from the energy and automotive markets were the unofficial themes of CRU’s 6th North American Steel Conference held in Chicago, Ill., on 29–30 October 2012.
Steelmakers, service centers, end users and analysts speaking at the event seemed to agree that uncertainty is holding back the North American markets, which are currently experiencing a very sluggish recovery.
“It’s a slow recovery. This is the battle we are in,” said Guilherme Gerdau Johannpeter, president of Gerdau Long Steel North America. “But it could be worse,” he commented, noting that the U.S. is in a better position than Europe.
Mark Breckheimer, president of Kloeckner Metals’ heavy carbon group, said better hiring momentum is needed to release pent-up consumer demand. Access to a qualified and trained labor force is another big concern for the U.S., he said.
Anika Khan, director and senior economist at Wells Fargo Securities, projects that slow growth will continue. The government will continue to restrain spending and shed jobs for some time, and this will be combined with lagging exports due to the global situation. As a result, she predicted GDP growth of 2.2% for 2012, followed by growth of just 1.3% in 2013. The good news, she said, is that growth should go up from there.
Rob Edwards, managing consultant for CRU, projected slightly higher GDP growth of 2.3% in 2013 and 2.9% in 2014. He forecast U.S. steel demand to recover to the pre-crisis average of around 115 million tons/year by 2017.
Timothy Hayes, senior vice president — research and metal equity analyst at Davenport Equity Research, said the “new normal” is this much slower growth compared to past cycles. He likened the average 3.2% growth from 1983 to 2008 to a debt-fueled borrowing binge, and the likely 1.8% growth from 2009 to at least 2016 will be deleveraging from the resulting hangover.
When it comes to steel demand, the automotive market and shale resources are providing the brightest outlooks, according to many of the conference speakers.
PK Rastogi, global automotive marketing manager for ArcelorMittal USA, commented that the remarkable recovery in the automotive market to around 15 million units in 2012 only goes to show that “you can’t predict the unpredictable.” Mr. Gerdau commented that a relatively low U.S. dollar, rejuvenated balance sheets at U.S. auto companies and reliable supplies are resulting in the reshoring of automotive manufacturing in the NAFTA region.
Steel’s role in light-weighting vehicles was the key topic during an automotive panel discussion, as automakers face stricter emissions and safety standards and are working to build lighter and more fuel-efficient cars. Curt Horvath, technical fellow — materials and corrosion engineering at General Motors Co., predicted that steel will remain the material of choice for automobiles, but noted that the use of aluminum, magnesium and fibers will grow as well. The future is a multi-material world when it comes to automobiles, said Randall Scheps, global marketing director of Alcoa’s automotive sheet group.
Shale gas, the “game changer” in U.S. energy independence, is the most significant disruptor to the North American economy in decades, said Steve Mehitretter, partner in A.T. Kearney’s global operations practice. “It will save the North American economy,” he predicted, bringing back jobs and providing the 100-year energy source the country has been looking for. A problem, he said, is that the proper infrastructure does not currently exist, but that is changing, as many new projects are on the way. There is still a lot of pipeline to be built, and hence a lot of line pipe to be consumed, commented Paul Vivian, principal of Preston Publishing Co.. However, once that capacity is built, demand for line pipe will flatten somewhat. OCTG demand will continue to grow, as an upward drilling trend is expected overall, despite slow growth and the continuation of market cycles, he said.
And the shale plays are not just an American phenomenon, presenters noted. The horizontal drilling technologies will also be exploited elsewhere, although Europe may struggle with environmental policy, said Mehitretter. He expects China to exploit its different formations in the next five to 10 years, as technology is also advancing rapidly there.
An inspiring call to action was given by the chief operating officer of Delaware Steel Co. of Pennsylvania, Lisa Goldenberg. She encouraged individuals to invest in and mentor our youth: “Give them the shot many of you had,” she said. She also urged the nurturing of business relationships, both internal and external, noting there is real value, now more than ever in our digital world, in face-to-face meetings, in handshaking and in personal contact. She also noted the value of a positive attitude in leadership roles. “A positive perspective is a choice, and it is self-fulfilling. Wake up with a purpose and share it with others,” she encouraged. “Optimism is a path to success, and it works every time,” she concluded.