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Consumer fears trouble distributors

Aug 11, 2011 | 03:19 PM |

Tags  Steel Distributors, S&P, U.S. Credit, Corinna Petry

CHICAGO — Steel distributors say the Standard & Poor’s downgrade of U.S. credit will not directly affect their business, either in terms of access to credit or the cost of borrowing.

But it may negatively impact consumer sentiment, and if consumers are spending less on durable goods due to uncertainty or fear, that lack of confidence will flow up the supply chain.

S&P "created panic and fear. Consumer confidence will be a little shell shocked," said Steven Bergman, president and chief executive officer of Premier Steel, Englewood, N.J. "The downgrade is a joke because (the ratings agency) has a very tragic history of reading the market for risk—like Enron (Corp.) and AIG (American International Group Inc.) and Citigroup (Inc.). I wouldn’t put much into it, outside of the hysteria."

Most business debts have already been written off and current bank loans are on stricter terms and covenants, so there "won’t be much of an effect on everyday business," Bill Vitucci, vice president of Vitco Steel Supply Corp., Posen, Ill., said. "But if (the government) cannot reduce spending to make good on their agreement, you might see further deterioration. It puts consumer confidence on a slower recovery because there is just more fear."

"I don’t think there will be any material impact whatsoever," said Kevin Beckman, president of St. Louis-based Trident Steel Co. But he echoed others in his criticism of Washington. "What annoys me is the knuckleheads don’t know to store nuts for the winter. They just fill the can with IOUs," he said. "It’s a fiscal train wreck."

At the end of the day, "I will put my money in the U.S. before anywhere else. We’re still the big kid on the block," said Paul Labriola, president of Robinson Laser LLC, East Chicago, Ind. "I don’t think anything is changed on the ground: Credit is still hard to secure."

Doug Everhart, president of Greenpoint Metals Inc., Franklin, Ohio, agreed. "Credit is so tight already that it won’t affect business from a credit standpoint. But it will affect it from a psychological standpoint, with skittish customers waiting even longer to place an order."

"I think the downgrade may be a wake-up call to the administration and Congress," O’Neal Industries Inc. vice chairman Bill Jones said. "We cannot keep putting off decisions on spending or taxing. It has us all nervous, but it’s not as negative as many of the pundits predict. It won’t change how people use financing or invest in their businesses."

Josh Kaufman, owner of Cleveland-based Monarch Steel Co., also sees the downgrade as having a psychological effect on the consumer, "which in turn means they aren’t buying cars and appliances," but he does not believe the impact will be long lasting.

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