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As the seasons change, so do views on metals’ future

Keywords: Tags  automotive industry, agricultural industry, North American steel industry, ArcelorMittal, Michael Rippey, AK Steel Corp., James L. Wainscott, North American aluminum industry Alcoa

As summer saunters through the dog days and prepares to blend into the fall and the start of the fourth quarter, North American metals producers are still traversing a rocky, uncertain road to recovery despite some still-encouraging signs, according to industry executives.

While demand is strong from the automotive, energy and agricultural sectors, the steel industry continues to face challenges of overcapacity, price volatility and a lagging construction sector, they say. As a result, North American producers aren’t operating at optimal capacity utilization rates as supply and demand remain out of balance. Similar issues continue to simultaneously excite and concern aluminum producers.

“Clearly, we’re not operating at rates that are acceptable today,” ArcelorMittal USA Inc. president and chief executive officer Michael Rippey said at the Steel Success Strategies XXVII conference in New York co-sponsored by AMM and World Steel Dynamics Inc.

“The issue is not really demand—demand’s not great, but it’s not horrible,” James L. Wainscott, chairman, president and chief executive officer of AK Steel Corp., West Chester, Ohio, said at the conference. “The issue is really too much supply.”

On the aluminum side, Pittsburgh-based Alcoa Inc. lowered its 2012 growth forecast for the North American heavy truck and trailer industry to a range of 4 to 8 percent from 7- to 12-percent growth it had predicted in the first quarter, but boosted its expectations for the automotive market.

“Heavy truck and trailer is a mixed picture. (It’s) down compared to the view we had in the first quarter. North America is really driving it,” Alcoa chairman and chief executive officer Klaus Kleinfeld said during a conference call after announcing a second-quarter net loss of $2 million. “We believe heavy truck production will slow down in the second half of the year and this will get production in line again with lower orders.”

Still, Kleinfeld maintains that truck and trailer demand in North America will pick up, given the aging fleets. “The average age of the fleet today is 6.69 years. That’s the oldest on record. The 20-year average is 5.85, so obviously there is a need for replacement ... and that is going to drive demand,” he said.

Meanwhile, Alcoa raised its North American automotive growth forecast to 10 to 14 percent from 7 to 12 percent previously. “(Automotive) is driven by North America,” Kleinfeld said. “(If you) look at June’s seasonally adjusted annual rates, it comes to 14.05 million vehicles, up 22 percent year over year or 15 percent year to date. That’s pretty substantial.”

The company maintained its bullish global aerospace forecast. “Our view has not changed. We expect 13- to 14-percent growth this year, driven by strong performance (from the) commercial aircraft segment. We see about an 8,300-aircraft backlog, which at today’s production is an eight-year backlog. ... That’s pretty amazing,” Kleinfeld said.

“It is very easy to tie the whole market to automotive. But it is not just automotive. The stock market is fine, large companies are making good returns, the construction market hasn’t gotten any worse, and agriculture, machinery and transportation—whether it’s rail car, barge, truck or trailer—are going good,” Thomas M. Marchak, vice president of commercial at Severstal North America Inc., told AMM in July. When I talk to colleagues in North America, guys running their businesses are saying, ‘Things are good.’ They say, ‘I’m selling more steel, but my margins are compressed.’”

Price volatility also remains a serious concern, according to Mark Millett, president and chief executive officer of Fort Wayne, Ind.-based Steel Dynamics Inc. (SDI). Buying decisions are being affected by “anticipated moves” in raw material markets, he said. “This is a dangerous but almost unavoidable strategy, facilitated in the near term by short mill lead times.”

Meanwhile, lagging demand from the construction sector continues to be “frustrating,” Rippey said, and other executives agreed, offering no forecast for improvement anytime soon.

One move that might help in the long term came in July, when President Obama signed into law a 27-month transportation bill that provides funding for the nation’s roads, bridges and highways at current levels through fiscal 2014. “The construction industry was hit brutally hard during the recession,” Obama said during a news conference. “This bill will keep thousands of construction workers on the job to rebuild our nation’s infrastructure.”

A number of market players, while celebrating the news, had some concerns. “It will be good for some who make road mesh. It’s good overall for infrastructure,” one trader said. “The problem is that it is just too long for the money and pickup in demand to come into the system.”

One buyer said he was surprised that a long-term solution—nine short-term extensions had been signed since the last long-term funding bill expired in 2009—was found despite the political gridlock in Washington. “It’s always disenchanting to watch what happens in D.C.,” he said.

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