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Energy still struggles while automotive is helping out

Sep 26, 2016 | 11:39 AM | John Ambrosia

Tags  steel, automotive, oil, energy, slump, 2016


Two big factors, both related to energy–one bad, one good–have come to define the metals industry of late.

Steel production, sales and prices have not had a good run of it for more than two years now, as the sector is feeling woes all along the supply chain.

First, the energy sector, which was once seen as a savior for the industry, has fallen on hard time since the summer of 2014. Falling energy prices have continued to gut global markets throughout 2016, as benchmark crude oil prices trended to 12- and 13-year lows to start the year and the fallout reached past commodities into the wider financial markets. The rig count remained below the 500-rig total in the week ending Sept. 2, a key benchmark for gauging steel pipe demand.

Oil prices are expected to remain flat well into 2017, and months of new oil capacity is sitting untapped in wells that are already drilled but not yet producing.

“While we may not see the rig levels of the past, we should see a general improvement of production capacity,” one energy analyst said. “Measured growth with an emphasis on optimization will bring increased activity levels, especially in the later part of (2017).”

On the other hand, automotive demand has been buoyant and has supported higher prices for cold-rolled and coated sheet products, but plate relies more heavily on the oil patch, where demand remains scarce.

After a strong spring–despite a large decrease in May–U.S. auto sales were steady in July before an August dip, raising concerns that a slower second half may be in store. According to Autodata, U.S. vehicle sales fell 4.2 percent in August, compared with a year earlier, and now stands at an annualized rate of 16.98 million vehicles.

However, sales through the first six months of 2016 still are running slightly ahead – 0.6 percent – of this point in 2015, a year which saw more cars sold than any other in U.S. history.

Yet there are still concerns being raised that the automotive market has flattened out and that the metals sector will no longer be able to count on it to pick up some of the slack created by the downturns in energy.

Uncertainty also exists over November’s presidential election and the continuing question of how long OPEC will seek to influence oil prices in order to affect the domestic energy sector.

These factors conspire to keep the future murky for U.S. pipe producers who service the drilling industry as well as for the steelmakers and aluminum manufacturers who supply the auto industry.

These are certainly the times that try the patience, planning and perserverance of those in the metalmaking business.



 

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