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Steel production rolls along, albeit slower than hoped

Keywords: Tags  raw steel production, ArcelorMittal, Nucor Corp., Dieter Hoeppli, David Sumoski, U.S. Steel, Michael S. Williams, P.S. Venkataramanan André B. Gerdau Johannpeter

U.S. raw steel output has just had its best five months since the beginning of the Great Recession in fall 2008. January, February, March and April were all months of growth, while May dipped just slightly, according to American Iron and Steel Institute figures. Raw production exceeded 1.9 million tons every week, the longest stretch of output at that level since September 2008, and for the first time in nearly four years the weekly production capability utilization rate topped the 80-percent mark.

What this means is that the U.S. steel industry may finally be returning to normal, although perhaps not as quickly or definitively as many had hoped. 

“While I would say every month is better than the previous month, we’re nowhere near 2007 levels of activity and demand,” P.S. Venkataramanan, chief executive officer of Luxembourg-based ArcelorMittal SA’s Long Carbon North America operations, said at AISTech, the Association for Iron and Steel Technology conference and exposition. “The meat of the whole business is commercial construction. Public spending has been nonexistent. We’re not seeing schools, we’re not seeing bridges (and) we’re not seeing major projects coming back.” 

Steel production in the first five months of the year averaged 1.94 million tonnes per week vs. an average of 1.8 million tons per week in the same period last year. Year-to-date production totaled nearly 42.72 million tons at an average capability utilization rate of 78.6 percent, up 7.9 percent from a year earlier, when mills produced 39.6 million tons at an average capability utilization rate of 74.1 percent.

While the U.S. construction market is unlikely to see a sudden rebound, steel producers are seeing renewed demand from the automotive and transportation sectors, as well as the energy and exploration industries, a panel of industry executives said at AISTech.

“It’s good news for our steel industry that the auto industry is recovering very well, at a very solid pace,” Michael S. Williams, senior vice president of North American flat-rolled operations at Pittsburgh-based U.S. Steel Corp., said during the AISTech Town Hall Forum.

The U.S. automotive sector’s rebound has surpassed expectations, according to Dieter Hoeppli, managing director of New York-based Deutsche Bank Securities Inc.’s natural resources group.  The pickup has been “a bright spot for the (steel) industry,” he said, which has been “bouncing back much faster than expected.”

But the growth goes beyond the automotive sector, with the transportation market at large booming. André B. Gerdau Johannpeter, chief executive officer of Porto Alegre, Brazil-based Gerdau SA, said he saw opportunities in bus, underground rail, shipping and beyond. Venkataramanan agreed, noting particular opportunities in rail travel. 

In addition to transportation, the energy and exploration industries—and their suppliers—have been doing well, the executives said, citing investments that companies have made recently catering to the natural gas industry.

“Any increase in exploration for natural gas will help the construction market,” said David Sumoski, vice president and general manager of Charlotte, N.C.-based Nucor Corp.’s Marion, Ohio, steel mill. “We’re very focused on that market.”

And the natural gas boom doesn’t simply benefit domestic steel producers by reducing costs. The oil country tubular goods (OCTG) market is also a major steel consumer. “We’re a big player in the energy market in the sense that we supply a lot of steel to the OCTG market,” Venkataramanan said, noting increased activity at drilling platforms and the strength of the global mining sector.

Meanwhile, the outlook for construction appears to be a slow and uncertain climb, the panel agreed. “(Construction is) the last to be affected going into a recession, and—as my sales manager reminds me every day—it’s the last to come out,” Sumoski said.

The U.S. construction market’s slow and unsteady rebound has prevented domestic steel mills from returning to even higher capacity utilization rates, and there’s no relief on the horizon, steel executives said during the Town Hall Forum.

While certain areas of the steel-consuming economy are back and booming, the construction sector remains a laggard, with serious consequences for steel producers. “That consumption needs to come back if we’re ever going to see our utilization rates get back above 85 to 90 percent,” Williams said.

Sumoski had harsher words. The building market is “pathetic,” he said. “It is improving, but improving from pathetic is still pathetic.”

The building sector is coming back unevenly across the country, the executives said. “In the U.S. market, we’ve seen different markets in different situations,” Johannpeter said, noting that non-residential construction was most robust, followed by infrastructure development, which he described as “lagging,” and then residential construction.

And while it might seem like a distant possibility now, Johannpeter said the industry had to be cautious about overheating in the future. “We have to think: Are we going to get back to those levels that were not real or too high at a certain point?” he asked.

U.S. producers were helped somewhat by an unusually warm winter. “We’ve seen a little uptick in activity earlier than we would normally from a seasonality standpoint,” Williams said. Still, he described the market as “at very low levels” and “anemic.” None of the executives said they expect a full recovery anytime soon. But the overall situation looks brighter than it has been for some time, they said. 

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