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Analysts open up on when this window will slam shut


Steel industry analysts have been impressed with the move by U.S. steelmakers to take advantage of favorable export conditions, but most warn that the window of opportunity to export steel at a significant profit likely won't remain open for long.

"It's something that could go more than a year, but I would not say it would last as much as two years," said Aldo Mazzaferro, steel industry analyst at Goldman Sachs Group Inc., New York. "How long these opportunities last really depends on the strength of the dollar and on the global price differential. It's kind of rare for U.S. prices to be below global pricing, but that is the situation you have and the mills are taking advantage."

Figures from the U.S. Commerce Department show just how much advantage mills are trying to gain. U.S. mills exported a record 11.1 million tons in 2007, up 15 percent from 9.6 million tons in 2006, 17 percent ahead of 9.4 million tons in 2005 and 40 percent more than the 2004 total of 7.9 million tons. Thus far in 2008, exports are averaging a little more than 1 million tons a month, which means if they remain at that pace they will total a record 12-million to 13-million tons this year.

U.S. mills have taken advantage of a series of phenomena that developed in late 2006 and continued through 2007. The weaker dollar has essentially made U.S. goods less expensive overseas and has helped keep steel prices in the United States at or below those in other markets. At the same time, demand for steel in the Middle East, Europe and Asia has been strong, leading U.S. companies to take advantage of export opportunities that often weren't available in the past.

Mark Parr, managing director of KeyBanc Capital Markets Inc., Cleveland, pointed out in a research note on first-quarter earnings by steelmakers that dollar weakness is supporting the export platform for domestic steelmakers, "providing another backstop against weaker at-home demand." Nucor Corp., Charlotte, N.C., has begun a formal program to serve export demand, Parr noted, and U.S. Steel Corp., Pittsburgh, has established ownership of three foreign mills.

"The momentum for exporting is full-out and it really has more than offset the reduction in U.S. imports," he said. "We continue to see evidence that export momentum is building. At the same time, the reduction in imports has given mills the opportunity to ship more tons in the U.S. In a lot of cases they are filling in the gaps left by the lack of exports."

Most U.S. mills have been involved in exporting product for most of the past year, buoyed by demand from developing countries and by the dollar and price dynamics that make exporting a sound business practice. But since this kind of opportunity hasn't often presented itself, mills are finding some difficulties.

Charles Bradford, steel industry analyst at Bradford Research/Soleil Securities Inc., New York, said U.S. mills haven't seen export opportunities like this since 1973-75, during the Nixon administration. "The U.S. dollar was devalued by Nixon twice, the U.S. became a big exporter and imports fell precipitously," he said. "The price of steel soared—nothing like what we've seen recently, but it went way up. That eventually led to bad things in the end."

Those bad things included a steel price crash that led to great economic woes for the industry in the early 1980s. Bradford doesn't foresee that kind of crash this time around, but warns that mills must take advantage of the opportunity to export while it lasts.

"The problem the mills have is that most of them are not set up to export," he said. "They have no experience at it and they have not established the kinds of relationships you need (with overseas trading partners) to be successful. They've done it for short periods when the conditions are right, but most of them don't have long-term strategic partners, so they don't really have an opportunity to continue to be successful for a long period."

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