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Steel market sees 2012 forecasts similar to 2011

Keywords: Tags  The Month in Metals, 2012 outlook, AMM Staff

Executives up and down the steel supply chain say they are gearing up for strong first- and second-quarter pricing and demand ahead of a softer second half as 2012 looks poised to largely mirror 2011.

“We are looking for a déjà vu of 2011,” a source at one East Coast flat-rolled distributor said, projecting a stronger 2012 but not a full return to pre-recession levels.

Some of the first-half strength is already apparent, he said, citing a marked pickup in order entry. “Our order book is very, very active. We placed a lot of mill orders both to cover increased business and to beat price increases. We are doing what everybody else is doing. That is why the mills (had) sold out rollings through January.”

However, there’s still some overcapacity on the sheet side, he warned, raising some concerns as to the sustainability of the run-up. “We aren’t sure if (incoming) orders are totally for replenishment or whether there are meat and potatoes behind it,” he said.

Raw steel capacity utilization rates and tonnage production surged near the end of 2011, providing some hope for the ferrous scrap industry that it may carry over into 2012. The overall utilization rate in 2011 was 74.7 percent, up 4.3 points from 70.4 percent the previous year, according to the American Iron and Steel Institute. Tonnages also were good: production totaled 95.59 million tons last year, up 7.9 percent from 88.57 million tons in 2010, according to the AISI.

“All things moving forward are looking better,” one Midwest scrap processor said. “Manufacturing seems to be coming back. People are tired of being down, so this will be the year we work our way out of this recession.”

The increase in raw steel output was a major factor—along with a rise in exports—that pushed scrap prices to higher levels throughout last year. Those prices rose so much, in fact, that scrap price averages were the highest in history, nudging out the boom year of 2008. 

“The market has been a little bit shaky but demand has kept a rather steady upwards trend, escalating a bit almost every day,” a Chicago dealer said.

An executive at a Chicago-area flat-rolled service center agreed that the momentum of recent weeks looks set to continue into the first half of 2012. “We are going out year-end swinging. We’re selling,” he said. “There is no doubt the price increases are sticking for January. We have felt some of that as customers are accelerating their (steel) intake, even though they don’t usually do that.”

But that upward trend could hit a stumbling block in the third quarter, he said. “2012 will be a repeat of 2011. The first half will be strong and the second half will peter out.”

The vice president of a national distributor echoed his sentiments. “Business is there, so we anticipate a first quarter equal to or better than 2011,” he said. Beyond that, however, “it’s still foggy. Nobody wants to commit to anything.”

The expected first-half strength also will work its way down the supply chain to end-users, sources said. The purchasing manager for a heavy vehicle equipment producer, for example, told AMM that 2011 was a “very good year in the truck trailer market and we expect 2012 to be stronger still,” forecasting growth of 10 to 15 percent.

“We did see a seasonal cutback in the fourth quarter because nobody wants to bring in more inventory, but an onslaught of deliveries are scheduled in the first quarter,” he said. “We are increasing tons as demand dictates and passing along announced price increases.”

Outside of the flat-rolled steel market, however, there is still some concern as to the scope of the recovery in 2012. The long products market, for instance, could still face some weakness, with one executive at a long products mill noting that he would like to see the construction market “going somewhere.”

“If the government had money, they would be happy to spend it (on infrastructure),” he said. “There is another call for public funds that are not available. But we remain hopeful.” 

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