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United States Metals Report Q4 2010
Business Monitor International, Oct 2010, Pages: 51
The United States Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on the United States' metals industry.
In the latest US Metals Report argues that while it might take longer than experienced in the past, the steel industry can expect to see steady improvement as the global economy begins its recovery. North American steelmakers benefit from a higher level of integration with iron ore or metallurgical coal mines than their Asian and European competitors. However, there are enduring concerns relating to overcapacity in the North American steel market and BMI is mindful that some operations – probably those electric arc furnaces that depend on scrap steel for feedstock – may yet close permanently.
In the first eight months of 2010, US crude steel output rose by an impressive 56.4% y-o-y to 54.5mn tonnes. However, output levels were still 20% down on pre-recession levels, indicating that the industry had some way to go before returning to normal. Monthly output peaked at 7.26mn tonnes in May before declining in subsequent months as the pace of recovery slackened, in line with global trends. The American Iron and Steel Institute reported that for the month of July 2010, US steel mills shipped 5.88mn tonnes, down 11.2% m-o-m but up 23% y-o-y. Shipments for the first seven months of totalled 44.26mn tonnes, up 55.3% y-o-y; at an annualised rate, they would total 75.84mn tonnes.
The improvement in exports, the domestic automotive market, oil and gas drilling and equipment are sustaining the market, with a modest yet consistent recovery. Non-residential construction remains the weak link in the marketplace and the key to a return to robust levels of demand for domestic and imported steel alike. The sector continued its decline in July, down 1.4% month-on-month (m-o-m) and 10.7% y-oy. For the first seven months of the year, non-residential construction was down 11.8% y-o-y. The market is not expected to begin its recovery before Q411 at the earliest. Imports remained modest as consumers and distributors continued to buy steel on an as needed basis, thereby benefitting domestic producers. The aluminium sector, which has benefitted from a relatively robust rebound in car making, is also reporting a strong recovery. Reuters reported that the annual rate of primary US aluminium production rose 9.4% to 1.72mn tonnes in August, but was down 0.2% from July’s annual rate. The Aluminum Association said that for the year through August, the annual production rate was down 3.9% at 1.71mn from an annual production rate of 1.78mn tonnes for the comparable 2009 period.
US steelmakers were expecting a poor Q310, signalling that the economy was not recovering at a consistent rate. AK Steel said that it expected to post an operating loss due to higher raw material and operating costs. It also brought forward a planned maintenance outage at its Ashland, Kentucky blast furnace, an indication that orders have slowed. Nucor also expected profit to drop due to sluggish demand, especially in the construction sector. It noted a downturn in demand in its flat rolled business. The federal stimulus programme has failed to have a major impact on the steel industry as it has been geared towards infrastructure that requires a low level of steel, such as roads. Moreover, the nonresidential construction sector, which is the US’s largest steel consuming segment, is unlikely to return to normal over the short term. On the upside, Chinese production cuts in Q410 should provide impetus to global prices thereby lifting profitability. Based on these trends, BMI forecasts crude steel output of 81.6mn tonnes (up 40.0% y-o-y) and hot-rolled output of 79.8mn tonnes (up 39.3%) in 2010,
accompanied by a 32.3% rise in finished steel consumption to 90.79mn tonnes. The recovery should be consolidated in 2011 as construction begins its slow revival, although this could be undermined by a slowdown in car purchases in the event of a faltering of the economic recovery. BMI forecasts a 9.7% rise in finished steel consumption to 99.63mn tonnes leading to a 6.6% rise in crude steel output to 86.94mn tonnes and a 6.2% rise in hot-rolled output to 84.81mn tonnes.
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