Too little, too slow. But not necessarily too late. That seems to sum up steel's verdict on the impact of the American Recovery and Reinvestment Act (ARRA), better known as the economic stimulus package.
Too little, because the amount of new demand likely to be generated by the ARRA—anything from 2.5 million to 3.5 million tons of steel, depending on estimates—is a small fraction of what has been wiped out by the economic slump. Building new bridges, renovating highways, investing in school buildings and constructing more wind towers are all worthwhile, but they don't begin to compensate for the idling of construction sites and auto plants across the country in the first half of the year.
Too slow, because as we move into the fourth quarter of what has been one of the toughest years in living memory for the U.S. economy, the real hour of need may have passed. Steel and metal prices have recovered from their lows, and there are at last some indications that underlying demand may be picking up, thanks to the "Cash for Clunkers" program and the progress of the natural stocking cycle. The ARRA's role in the recovery appears to have been tiny, although its psychological impact may have been more important.
But too late? Perhaps not. At the end of last year, when mills had cut capacity rates to below 40 percent and steel share prices had plunged to bargain-basement levels, the promise of a government-led demand boost was welcomed with open arms. Because it hasn't yet materialized doesn't mean that it won't be needed in the future.
Whatever you feel about the Obama administration's policies—and we know they're generating strong opinions throughout the industry—it's undeniable that the President came into office facing an unprecedented number of "emergencies," as one steel analyst described them. At the top of the list was the state of the banks and the automakers, which were broken and needed rescuing.
The steel industry has been through its own crisis, and although there were, and will be, casualties as a result of the credit crunch—particularly among smaller companies most exposed to the auto sector, not to mention the thousands of workers laid off or furloughed across all parts of the production chain—the industry as a whole hasn't needed a huge helping hand from government.
The economy remains fragile, however, and just because the worst of the downturn appears to have passed it doesn't mean the industry is out of the woods. All sorts of problems could derail the recovery a fresh slump in the financial markets, stagnation in the post-Clunker auto industry, the continuing rationing of credit and, not least, the impact of China, where an altogether more steel-intensive stimulus program has sent steel demand to unprecedented highs and in doing so has kept the country's exports well below last year's levels.
If China stumbles, a fresh surge of steel to U.S. shores could easily drive down prices. That might give a short-term shot in the arm to steel buyers for government-funded construction projects, but it risks undercutting the mills' attempts to match production to demand throughout the downturn and the nascent upturn.
Industry analysts and executives believe it will be 2010 before the bigger bridge-building and construction projects under the ARRA generate sizeable new demand for steel. That's a year later than many would have liked, but not too late to play a role in steel's delicate recovery.