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
"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
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."