Overall business activity is improving from last years
levels, buoyed by strong monthly reports showing increases in
service center shipments, some of the largest American metal
processing and distribution companies said.
Improvements are expected to be slight, though, because a
number of factors beyond shipping levels still worry players in
the industry: a depressed construction market, the European
sovereign debt crisis and the volatility that typically
accompanies a presidential election year.
But because Metals Service Center Institute (MSCI) shipment
statistics improved in each month of the fourth quarter, some
optimism has crept into the market.
Service center sources confirmed that business was steady,
and while volumes werent back to pre-recession levels,
they said they were still buying and selling steel on a daily
basis. Its steady. I dont think its
crazy, but people are buying, one distributor source
Domestic steel demand appears to be on the upswing,
bolstered by strengthening activity in the oil and gas,
automotive, heavy equipment and general manufacturing sectors,
according to Metals USA Holdings Corp. president and chief
executive officer Lourenco Goncalves.
We see more upside than downside potential, he
told investors during the companys year-end earnings
conference call in late January, predicting that steel demand
would outpace any increases in U.S. gross domestic product
(GDP) this year. We saw improvements in 2011, and even
more improvements are expected in 2012.
Those improvements are expected to follow a more traditional
seasonal pickup this year after years of volatility, Goncalves
said. The typical seasonality of our business is back. We
expect the first quarter to be better than the fourth quarter,
and the second quarter will be incrementally more profitable
than the first quarter.
A number of key end-use sectors are behind the service
center chains more bullish steel forecast. We are
doing a decent amount of business in the oil and gas sector and
we have not heard from customers about any slowdown. (And)
its clear by now that automotive is outpacing GDP,
David H. Hannah, chairman and chief executive officer of Los
Angeles-based Reliance Steel & Aluminum Co., said he
believes that the energy, aerospace and defense, semiconductors
and electronics, and heavy equipment end markets will grow
fairly strong. We think aerospace will be quite a bit
better. The build rates are improving on commercial lines like
the (Boeing Co.) Dreamliner and (Airbus SAS) A380 that were
bogged down in certifications and manufacturing processes.
Including defense, its very positive, he said.
Whether steel, aluminum or copper, arrows seem to be
pointing in the right direction, according to industry
Service center shipments of both steel and aluminum grew at
slightly higher levels in Canada during December, the latest
available data. In the United States, steel shipments grew at
about half the rate of the previous month while growth in
aluminum shipments remained about the same.
Inventory-to-shipment ratios increased to typical December
levels, according to the MSCI.
U.S. service centers shipped nearly 3 million tons of steel
products in December, a 5-percent increase from the same month
a year earlier, pushing full-year shipments to 40.7 million
tons, up 14.2 percent from 2010. Steel product inventories
totaled 8.3 million tons at the end of last year, up 3.1
percent from the previous month and 8.3 percent higher than
December 2010, representing 2.8 months supply, a
3.1-percent increase from the end of 2010, according to the
Despite some fourth-quarter improvements, U.S. service
center aluminum shipments of 109,300 tons in December were down
9.5 percent from 120,800 tons the previous month although up
nearly 9 percent from 100,300 tons in December 2010. For the
full year, aluminum shipments totaled 1.5 million tons, up 15
percent from 2010. U.S. aluminum product inventories totaled
356,000 tons at the end of December, representing 3.3
months supply, down 5.9 percent from a year earlier but
up slightly from November, according to the MSCI.
Canadian service centers shipped 419,000 tons of steel in
December, up 10.2 percent from the same month a year earlier,
putting full-year shipments at 6.2 million tons, an 11-percent
increase from 2010.
Aluminum shipments by Canadian service centers totaled 9,700
tons in December, down 26.5 percent from November but up 7.8
percent from a year earlier. Full-year aluminum shipments
totaled 146,500 tons, an 8.4-percent increase from 2010
The increased business has been paying off for Metals USA,
which reported a sharp rebound in revenue and profits during
the fourth quarter and full year as shipping volumes logged a
double-digit percentage increase. Our 2011 results are a
clear demonstration that Metals USA is able to consistently
generate strong profits even under less-than-ideal business
conditions, Goncalves said.
Metal shipments in the fourth quarter totaled 327,000 tons,
a 23.1-percent jump from the same period a year earlier, the
Fort Lauderdale, Fla.-based company said, while annual
shipments climbed 32 percent to 1.4 million tons.
Metals USA strengthened business with established
customers, developed relationships with new customers and
expanded our market reach, Goncalves added.
Meanwhile, Goncalves said he wasnt concerned about
talk of overcapacity in the domestic steel sector or its impact
on the market. Analysts and market observers have been focused
on the idea of overcapacity, he said, noting that he believes
the issue of capacity in the U.S. steel market has been
overanalyzed and, perhaps, overstated.
Except for ThyssenKrupp Steel USA Inc., Calvert, Ala., and
Severstal North America Inc., Columbus, Miss., the rest of the
so-called new capacity consists of tons coming back at idled
plants, he said. Lets talk about operating rates.
The rate you see is pretty damned exciting at this stage of the
economic recovery. Some mills are talking about expanding
capacity. We have been hearing about mills putting in 1 million
If the industry is operating at 75 percent and talking about
new capacity, thats a sign that 75 percent is not a
bad rate, he said. You may think they (mills) are
not busy, but they are.
Optimism also reigns at industry giant Reliance Steel &
Aluminum. Energy is probably the brightest spot (and) we
think it has legs into the future, Hannah said, citing
developing extraction opportunities such as fracking,
horizontal drilling and tar sand sites in Canada. We hope
we will get some new activity on deep-water drilling. The
truck, trailer and shipbuilding markets also have upward
momentum, and prospects for heavy equipment are looking
really good, he said, adding that those markets have
Out of all the markets, non-residential construction
is the only one that is a question mark. It hasnt
recovered much from its low point in 2009, Hannah said.
After a slight glimmer in early summer 2011, the whole
debt-ceiling fiascocombined with European financial
issues, metal prices coming down and talk of a double-dip
recessiontook the wind out of the sails for
non-residential. We have not much more than pure faith that it
wont get any worse.
Small industrial customers demand has grown, Hannah
said, but we need more (economic) improvement before the
job shops, machine shops and fabricators really get
Michael Siegal, chairman and chief executive officer of
Olympic Steel Inc., Bedford Heights, Ohio, who projects a
5-percent increase in steel demand and larger market-share
growth for his company in 2012, echoed Hannahs
sentiments, saying that media headlines dont accurately
reflect the metals market.
We at Olympic Steel are offended when we hear the
media and our government continually talk about how no one is
investing capital in growth (or) how no one is hiring
employees, he said. We are very proud of the fact
that we continue to invest in North America and, specifically,
the United Sates. We are proud of the fact that we are
continuing to add employment in this country with good pay and
good benefits. Nobody seems to recognize the fact that this
industry in total and the service center sector is a very
dynamic and growing universe irrespective of the GDP.
At Esmark Inc., chairman and chief executive officer James
P. Bouchard wasnt as optimistic as Reliance and Olympic,
projecting flatter or lower domestic steel consumption in 2012.
However, he expects his Sewickley, Pa.-based company to capture
more market share in recovering industries.
Esmarks heavy steel fabrication subsidiary, Excalibur
Machine Co., has doubled its employment while fabricating
components for customers in the Marcellus shale natural gas
field. The backlog of orders for power generation components is
as big as it has ever been, Bouchard said, adding
that Excaliburs sales and profits should double in
On the aluminum front, shipments from U.S. and Canadian
service centers are expected to increase this year, sources
said, although forward buying will be kept to a minimum as
market players remember the lessons of 2008.
Business conditions are generally improving. I
definitely believe were headed in the right
direction, one aluminum service center source told
A second agreed, noting that the first quarter is already
off to a stronger start. The first week of this year was
dead in the water. But things started picking up, he
said, noting that he received unexpected calls from customers
on Martin Luther King Jr. Day. I thought (it) was a
holiday, but I was getting orders; people were calling for more
metal. Weve been really busy.
Still, customers are only ordering to fill immediate
requirements as an element of fear remains in the market.
Customers are not buying anything they dont need;
theyre just buying exactly what they need, he said,
adding that he expects this trend to continue.
(Were) not going to get a lot of forward buying.
People are still scared. Prices came crashing down,
Europes a mess and anyone who carries stock carries a
huge amount of risk.
But even though volumes are smaller, at least customers are
buying, which is good for business, he added.
Order levels for copper products also have remained strong
in early 2012, building on orders placed in the final weeks of
last year for January shipment, distributors told AMM.
Some sources said they feel optimistic, but others said
theyre waiting to see if business remains strong.
Customers have been calling, but it is still too soon to say
if demand will be sustained this year, one service center
source said. Weve been getting orders, but
its a little early to tell. Last January we saw an
increase from the year before, and I see that (again)
Another distributor source said hed seen good
signs in the first week of the year. We are
enjoying brisk shipping, he said. Its been
fairly strong for the first week. Im pretty bullish so
far on 2012.
A third service center source confirmed that orders in the
first full week of the year were strong. Were very
busy right now, he said.
One copper trader said the spot market was strong, noting
that he had been getting more than a few calls from
people needing copper. He said he thought continued business in
the spot market could push delivered premiums for copper
higher. Late last year, copper traders told AMM that
they saw little reason for red metal premiums to increase in
2012 (AMM, Nov. 28).
Still, others have said that demand in the spot market
remains minimal. Its been quiet, a second
copper trader said.
Corinna Petry, Chicago, and Suzy Waite, New
York, contributed to this story.