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Metals executives showed good 2016 forecasting skill

Dec 22, 2016 | 11:34 AM | John Ambrosia

Tags  AMM survey, forecasting, economy, steel, ferrous scrap, executives??


Each year I looked at how well metals executives have performed since the recession in predicting the upcoming business climate each year. The beginning of a new year offers a chance to update that performance.

Forecasting is among the most challenging aspects of an executive’s job; accurately gauging where the economy is heading, how much demand there will be and what responses those two factors need requires experience, knowledge, intuition, analytics and a sort of alchemical means of blending those together to produce useful insights that can be acted upon are critical.

For eight of the past nine years – counting this year – AMM has surveyed metals executives and asked them to look ahead at the prospects for each coming new year. Of course we won’t know how accurate this year’s survey opinions will be until this time next year.

But for past surveys, we can assess how good a job these metals executives did overall in predicting which way the wind would blow for most years between 2009 and 2016.

First, a recap of might be helpful. How have executives viewed whether business will be better or worse in each upcoming year in past surveys (year is the upcoming year):



Things mostly got worse for metals in 2016, and far worse in some sectors than others; in a moment we’ll look at the other years. Executives got it right in the survey–this year saw continued declines in the energy sector and tremendous challenges from global trade. Now here’s a look at whether executives believed the U.S. economy, the global economy or raw materials were going to have the biggest impact on business:



I think what is reflected here is that once it became clear that neither the domestic nor global economies were going to catch fire anytime soon, raw materials availability and costs became bigger factors, a well-reasoned response. But as the economy has slowly rebounded, those costs have become considered less influential.

So how have these predictions played out against actual results? Let’s start with a look at a basic question (AMM did not conduct a poll leading into 2010), using GDP growth, raw steel output and aluminum as rough measures:


 
Right off the bat this is an impressive record.

Those general economic improvements continued in 2016, as GDP rsoe and unemployment fell, although steel orders and production remained stagnant.

Overall, a good call.

More specifically, we also asked respondents to tell us which end markets of the economy would contribute most to the well-being of the metals sector.
 
Each year, automotive and energy combined to create a significant majority of responses.

Let’s compare predictions to changes in North American light vehicle sales and U.S. oil and gas rig counts:



Auto sales-National Automobile Dealers Association; rig counts-Baker Hughes Auto sales dropped off the table from 13.2 million in 2008. Even though rig counts also took a hard hit – falling from 1,879 in 2008 – energy turned out to be the one bright spot that kept everyone’s heads above water in 2009. Again, the respondents pretty much hit the nail on the head every year until 2015. The energy decline that began in mid-2014 clearly was not expected to last through all of 2016. Automotive was estimated properly.

Another important question is when metals executives believe that recovery from the recession will fully take hold. The incremental growth patterns in unemployment reduction, GDP and other markers during the past five years make it clear that robust recovery has yet to take place. But have executives understood that reality in real time? Here are survey results:



Once again, 2016 was estimated just about right, at least from a metals perspective. However, if assessing the general economy is considered, last year’s survey results weren’t bad. Taking all of this into account, I think metals executives deserve a good grade on their predictive abilities over the past several years, rising to an A- from the B I felt they deserved last year.



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How do trade cases and other protectionist measures affect domestic metal demand?

They sharply increase demand
They slightly increase demand
They have no impact on demand
They slightly reduce demand
They sharply reduce demand
Don’t know


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