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Remember you are mortal

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As viewers of HBO's mini-series Rome will know, emperors from Julius Caesar onwards sought to resist delusions of grandeur by employing a slave to whisper in their ear, "Remember you are mortal." Amid the pomp and circumstance of what many people now acknowledge to be the most sustainable period of growth in the steel market for a generation, a similar warning would be advisable.

The steel industry may not be the new Rome—although reports of its decline and fall have proven to be greatly exaggerated—and today's executives would be the first to warn of continuing threats to the current era of growth, but for an industry that less than 10 years ago had to petition the government to protect it from "unfair" foreign competition, the transformation has nevertheless been dramatic.

Steelmakers are raking in record profits as steel prices surge to levels that would have seemed unimaginable even six months ago and are being accepted by customers despite key sectors of the economy struggling with a recession. Meanwhile, imports, which for years restricted the ability of domestic mills to expand, are no longer as much of a competitive threat thanks to the (perhaps long-term) decline in the value of the dollar.

Even so, challenges remain. Among the most immediate is what economists like to call "demand destruction"—the threat that high prices will erode, or potentially destroy, consumer demand. Steel isn't easily substituted in many of its key applications, but no-one should underestimate the impact of $1,000-a-ton hot-rolled coil on end markets. Steel companies are talking to their consumers about high prices, and say that—so far—the reaction from buyers has been understanding. That needs to last.

There are other threats on the horizon, some of which are beyond anyone's control and others which are self-inflicted. The rapid growth of China and other developing economies is an opportunity as well as a concern; but if China's economy stumbles, and as a result its 500-million-ton steel industry is forced to start seeking new markets, it may take more than a lame dollar to keep the floodgates shut.

Events in Washington are as much of a worry as those in Beijing. The debate over climate change legislation is heating up and new laws seem likely to be passed early in the next administration. It's crucial that legislation does not damage the competitive advantage of U.S. manufacturing, but it's also clear that many people in the industry are bracing for exactly that outcome.

Energy policy is another area where Washington has taken its eye off the ball. $130 oil and $12 natural gas may be hard enough to swallow now, but if the lights start going out in parts of the South because of a long-term lack of investment in the energy industry, as some fear they will, large industrial users will be the first to suffer.

All that said, these are good times for the steel industry and for other parts of the metals world, too. Many of the current emperors of the steel industry will be taking the stage at AMM's Steel Success Strategies XXIII conference in New York in late June, and the mood of the event is set to be the most upbeat for a long time. The way the industry and the government deal with the threats to the current era of success will determine whether that optimism persists.

David Brooks, senior vice president


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