After a year in office, the Obama administration seems to have managed to split the country on most issues. Approval ratings of 50 percent as of mid-January indicate widespread disagreement on many of the President's policies, from health care reform to climate change to financial regulation. Add issues like "card check" and "Buy American," and it's a good bet that there's a big difference of opinion in the metals industry, too.
But if there's one administration policy goal that's likely to win near-universal approval, it's the desire to rejuvenate the nation's manufacturing base.
That manufacturing is in decline is no secret. According to government figures, manufacturing accounted for 12 percent of gross domestic product (GDP) in 2007, down from 15.9 percent in 1993 and a post-World War II high of 28.3 percent in 1953.
The rise in globalization and free-trade agreements also means that U.S. manufacturing is battling it out in a global marketplace, and the numbers don't look too good compared with our largest trade rivals: manufacturing accounted for 23 percent of Germany's GDP and a massive 34 percent for China, according to figures cited by the National Association of Manufacturing.
Of course, a good portion of China's manufacturing output ends up being consumed in Springfield rather than Shanghai, something that's a continuing bugbear for U.S. industry. But while the White House is protesting with varying degrees of intensity about China's trade policies, it's increasingly adopting the same basic model—an export-led demand boost for manufacturers—as it attempts to lead a recovery of the battered U.S. economy.
That makes sense. With the dollar remaining weak (as a result of market forces, not a government-led peg) and domestic demand unlikely to rebound sharply as U.S. consumers rediscover the virtues of saving, the export market presents growth opportunities that are unlikely to be found at home for some time. Developing new markets for U.S. goods also creates jobs at home.
This should be good news for steel. It's generally agreed that the long drive towards efficiency over the past 10 years has left U.S. production costs among the lowest in the world, while domestically produced hot rolled is now selling at levels that are competitive with steel produced by other major nations. That should result in rising exports, and the figures bear that out, both in the short term—exports were on the rise for much of 2009—and over a longer period; exports now account for 15 percent of shipments vs. just 8 percent in 2003, according to the American Iron and Steel Institute. High-value products like alloy and electrical steels have seen particularly strong demand from overseas markets, industry participants note, but even commodity-grade products are in demand.
So will steel follow in the footsteps of the ferrous scrap market, where domestic pricing and availability is routinely determined by purchase decisions in Turkey and China? It's doubtful. Developing nations will remain structurally short of domestic scrap for years to come, guaranteeing a ready market for scrap-rich nations like the United States. But the surge in international scrap trade in recent years illustrates how export demand can transform domestic market dynamics.
There's another big difference between steel and scrap: import policy. U.S. scrap shipments to China aren't competing with a domestic industry. The same can't be said of Chinese shipments of oil country tubular goods, line pipe, PC strand and other products, which are all subject to dumping duties or investigations by the International Trade Commission. So far, U.S. steel exports generally have avoided the same fate (one recent exception being electrical steel products, which are subject to a controversial—and, some would say, politically driven—dumping investigation in China). Given the strains in global trade relations, and those between the United States and China in particular, this could change quickly if U.S. exports do ramp up.
In the past decade the steel industry spent a lot more time, effort and lobbying dollars fighting off the threat of imports than it did focusing on opportunities to develop new markets outside North America. Might the next decade see that trend turned on its head—or will trade tensions with China and other nations derail any rise in exports? Whatever the answer, the health of the metals industry is likely to be as much tied to trade flows in 2020 as it is today.