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Steel, distribution urges regulatory, tax reform

Keywords: Tags  Metals Service Center Institute, Reliance Steel, David Hannah, Nucor, John Ferriola, MIchael Arnold, Ryerson, Michael Hoffman Klockner

CITY OF INDUSTRY, Calif. — The failure of both Washington and local governments to give a clear message on economic, tax and regulatory issues continues to discourage investment in steel, manufacturing and metal distribution, executives charged this week.

Reliance Steel & Aluminum Co., for example, had expected its capital spending for 2012 to reach $250 million, David Hannah, chairman and chief executive officer of the Los Angeles-based distribution chain, said at the Metals Service Center Institute’s Southern California Manufacturing Summit.

But as the year progressed, Reliance’s spending "lost quite a bit of momentum," due in large part to uncertainty—at both national and local levels—on such issues as taxes and the regulatory climate, and will fall "far short" of this year’s earlier target, he said.

"We don’t know what the rules are going to be," Hannah said of the unclear regulatory situation ahead.

Another Reliance executive told AMM that the company’s capital expenditures through the first nine months totaled about $137 million, with next year’s expenditures expected to drop to range of $150 to $175 million.

John Ferriola, president and chief operating officer of Nucor Corp., noted that the Charlotte, N.C.-based steel producer was at one time looking to build a blast furnace in Louisiana. But as questions about carbon taxes "dragged on for years" with no clear resolution, Nucor instead ended up choosing direct-reduced iron technology for the site.

"It's impossible to go ahead without having consistent, reliable data," Ferriola said.

Michael C. Arnold, president and chief executive officer of Ryerson Inc., agreed that one of the greatest challenges during the past several years has been "complete uncertainty over what might happen" in the year ahead. Since the Chicago-based service center now operates on an international scale, he said it could decide to invest in such markets as Germany or South Africa if they were seen as more attractive than the United States. "We have global choices," he said.

The data backs up the growing "conservatism" among chief executive officers, said Michael H. Hoffman, vice chairman of Klöckner USA Holdings Inc. According to a recent survey of chief executives, some 85 percent currently aren’t inclined towards expansion or investment, he said.

That apprehension comes at a time when Europe’s recession is "deeper and wider" than anticipated, while China’s rate of economic growth is down to a comparatively low annualized rate of 8 percent, Hoffman said.

While none of the executives at the event endorsed either of the two presidential candidates, no one hearing their remarks would mistake the summit as a rally to re-elect President Obama.

"The next four years cannot go the way the last four years went," Arnold said.

However, Republican Mitt Romney wouldn’t get a free pass. Ferriola said that if Romney is successful, businesses will expect him to "make good" on his promise to designate China a currency manipulator.

Moreover, none of the executives predicted a quick change to the current climate based on next week’s election results. While an Obama victory might immediately send stock markets "down a bit," Hannah predicted, a Romney win is unlikely to "spike" them upwards, either. "I don’t really see any real big surprises out there," he said.

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