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