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Steel players trying to construct an optimistic '12 outlook

Keywords: Tags  2012 steel outlook, Michael H. Hoffman, domestic steel industry, Vicente Wright, transportation bill,

While signs of optimism started to emerge several weeks into 2012 among players in the metals sector, especially the carbon steel industry, a few of them are still pointing to potential detours on the road to a fuller economic recovery.

“As much as I’d like to give a totally optimistic preview, I find it difficult to do that under the circumstances and I think we are going to face a somewhat difficult scenario for 2012,” Michael H. Hoffman, vice chairman of Klöckner USA Holdings, said at the Metals Service Center Institute (MSCI) Carbon Products Conference in February.

While most players in the domestic steel industry “are feeling a little better” about the first half of 2012, the overall outlook for the steel sector this year remains less than robust, Hoffman said. “We’re still going to probably languish at around 105 million to 110 million tons of consumption in the United States this year, so that’s not a good outlook.

Service centers collectively have got to set their horizons around the reality of where we are.”

U.S. Steel Corp. executives offered a cautiously optimistic outlook for 2012, citing early signs of upticks in a host of markets, including automotive. In fact, nearly every major flat-rolled steel market has shown signs of improvement this year, U.S. Steel chairman and chief executive officer John Surma said during a conference call in February following the company’s year-end earnings release. “Some more than others, but all positives nonetheless,” he said, noting expected improvements in markets as diverse as automotive, industrial equipment, appliances and tin mill products. Even the construction market might finally be climbing out of its “recessionary doldrums,” the top executive of the Pittsburgh-based steelmaker said. As end markets pick up, so should shipments to service centers, Surma said, noting that U.S. lead times had extended by roughly a week to about six weeks.

But it is undeniable that some segments are showing more signs of recovery than others. Energy is one end-use steel sector contributing more than its fair share to the steel market’s recent strength, industry leaders said.

“It’s a considerable driver for us right now. Outside the Keystone/TransCanada issue, you’ve got very good line pipe activity right now, both small-diameter created by the shale plays as well as large-diameter,” SSAB Americas president Charles W. Schmitt said, also citing strength in the petrochemical and energy transportation sectors.

Hoffman agreed that certain markets were showing more momentum. “Automotive is recovering and looking much more promising than it did a year ago. Energy consumption (also) is up, there’s no doubt about it, but there are other sectors that continue to languish,” he said.

Other industry leaders agreed, citing construction as the weakest link in the domestic steel market.

But improvement in the slower-to-recover sectors will simply take time, said Vicente Wright, president and chief executive officer of California Steel Industries Inc., Fontana, Calif. “There are some markets that are good, the pipe market in our case, the energy (market), galvanized is good but not as good as we’d like it to be. . . . We understand this is the reality and we have to be patient.”

In the midst of all these attempts to gauge the future, two versions of a multiyear transportation bill were circulating in the Senate and the House. Both Transportation Secretary Ray LaHood and the White House have said they prefer the Senate’s two-year $109-billion transportation bill to the five-year $260-billion bill circulating in the House, but with little sign of a compromise emerging observers expect the only near-term action will be yet another temporary extension from the last long-term bill that expired several years ago.

Steel interests have said that a long-term transportation bill would help stimulate the stagnant construction market and buoy domestic steel demand. “People want to invest in infrastructure and move forward,” one steel trader said. “The country really needs these investments and so does the steel industry. But right now, we’re in a wait-and-see cycle.”

That cycle is keenly evident in one of the nation’s largest markets. California’s construction environment, crucial to the state’s steel industry, is showing signs of life but its recovery won’t be swift, according to one analyst. “It’s better out there, but it’s nothing to write home about,” Nancy Sidhu, chief economist at Santa Monica, Calif.-based Sidhu Group, said about the state’s construction market.

Residential and non-residential construction on the West Coast dominates the steel long products market typically associated with building activity. But flat-rolled mills in the region estimate it also accounts for more than 50 percent of the sheet market, which in other parts of the country is linked primarily to manufacturing industries, such as automotive and appliances.

Sidhu, who recently retired as chief economist at Los Angeles County Economic Development Corp. and once served as economist for the former Inland Steel Industries Inc., noted that some infrastructure projects are still consuming steel, as well as construction work at ports. “But in terms of privately funded structures, there isn’t that much going on,” she said, pointing out that California lost 1.4 million jobs in the Great Recession but had recovered only one-quarter of those, or about 355,000 jobs, since the state’s economy hit its nadir in 2009—a pace she described as “too slow for people to see.”

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