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Government shutdown effect on steel unclear

Oct 17, 2013 | 06:59 PM |

Tags  government shutdown, Charles Bradford, Bradford Research, American Iron and Steel Institute, AISI, Thomas J. Gibson, Standard & Poor's, steel budget

NEW YORK — Lawmakers raised the debt ceiling and refunded government programs late Oct. 16 after a 16-day shutdown, but the extent of the damage to the economy and the steel industry may not be felt immediately.

"It’s definitely a net negative for the economy. It would have been better had it not happened," American Iron and Steel Institute president Thomas J. Gibson told AMM. "(But) the catastrophic effects of defaulting were not realized. It’s a temporary disruption, but given that they’ve solved this and hopefully they won’t grab the hot oven again in January, hopefully we won’t see major long-term impacts on this."

Credit ratings agency Standard & Poor’s Corp. estimated Oct. 16 that the shutdown has taken $24 billion out of the U.S. economy and cut fourth-quarter gross domestic product growth by 0.6 percent, adding that the shutdown will likely hurt consumer confidence.

"If people are afraid that the government policy brinkmanship will resurface again, and with it the risk of another shutdown or worse, they’ll remain afraid to open up their checkbooks," New York-based Standard & Poor’s said.

Steel shipments remained relatively constant during the government shutdown, according to data from the American Iron and Steel Institute, but with steel shipment lead times of at least three weeks, a downturn in volumes might not be noticed until next month or later.

"There would be no impact until the fourth quarter," New York-based Bradford Research Inc. analyst Charles Bradford  told AMM. "My guess is the mills generally have more than a four-week lead time, so I would suspect the impact on shipments in October would be minimal."

Even if steel shipments are not significantly affected, there could be an impact on mill and steel consumers’ capital expenditures, Bradford said.

"I would think that the bigger issue is more psychological and whether investors or companies delay planned capital spending, which involves building facilities and other investments, until they get a better handle on where this whole thing ends up early next year," he said.

Construction may have taken a hit as well. The National Association of Home Builders (NAHB) said Oct. 16 that an index of sentiment among home builders fell to 55 in October from 57 in September, indicating tempered enthusiasm about the housing market. The NAHB said the turmoil in Washington was to blame.

"Builder optimism remains above 50 and we are still seeing signs of pent-up demand in many markets across the country," NAHB chairman Rick Judson, a home builder from Charlotte, N.C., said in a statement. "This slight dip in builder sentiment is the result of continuing challenges in the marketplace with regard to the cost and availability of labor and lots and uncertainty in Washington."

Rep. Nick J. Rahall (D., W.Va) said in a letter to House Speaker John Boehner (R., Ohio) that the shutdown had debilitated inspections of key transit corridors.

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