Technically speaking, the Great Recession began in December 2007, reached its nadir in 2008 and concluded in summer 2009, meaning that weve been in recovery for five years now. So why doesnt it feel that way in the steel industry? First off, a robust and sustained recovery has yet to kick in for many economic sectors beyond steel, meaning demand has yet to soar.
In the waning days of the Bush administration and the early days of the Obama administration, many economists from both sides of the political landscape said that without a full-throated response from the government the United States would risk falling into a 1990sand even early 2000sJapanese-style decade-long slump, or a so-called lost decade. This year marks the seventh anniversary of the start of the recession, and it sure feels like the United States is well on the way to completing its own decade of despair.
Lets put aside for a moment issues such as reforming the financial sector, passing a bigger stimulus package and increasing revenue. Instead, lets examine how this ho-hum recovery looked within the steel sector and take a look at whats been working and what hasnt. Im starting all of these reviews with 2010, since 2008 was a volatile aberration and 2009 was a crater. A recovery, however anemic, had begun by 2010. The natural place to start is with demand, here is apparent demand and domestic steel shipments for 2010-13 (in millions of tonnes).
The first two years look like what you might expect to see emerging from a deep economic hole, but last year looks a lot like running in place. What could cause domestic shipments to drop in a year in which gross domestic product grew at a reasonably healthy rate? Here are U.S. steel import and export figures for the same period (in millions of tonnes).
While both have grown since the end of the recession, the gap between imports and exports has widened considerably. And all that additional imported steel clearly has met part of the demand that the recovery has created, leaving steelmakers somewhat less healthy than they otherwise might have been. That has led to a stagnation in steel production as well.
There is a climb here, but not a dramatic one. Furthermore, through mid-May the capacity utilization rate this year was 76.6 percent, essentially flat from last year.
A quick side note: One of the reasons the recession and recovery have seemed so awful is the big hit employment numbers took. Although job creation has increased considerably at the overall national level, take a look at what slow growth in demand and rapid gains in imports have done to domestic steel jobs (in thousands):
Of big interest is where domestic steel shipments are going, regardless of whether the total annual tonnage is up or down. Heres a percentage breakdown (other includes appliances, containers, the defense sector and miscellaneous):
This is a clear road map to steels recent past. The general economys inability to jump-start construction is clearly hurting steel, but the good news is that automotive and energy end-users have picked up some of that slack. Where will we be in three years? The prospects for a U.S. version of a lost decade look probablemeaning that steel may continue to face some hard times ahead before turning the corner.