NEW YORK The outlook for
the U.S. steel sector is one of stability, according to Metals
USA Holdings Corp.s top executive, although continued
growth will require discipline from domestic mills in order to
keep tags up and fix volatility in pricing cycles.
"Steel demand continues to
improve," Metals USA chairman, president and chief executive
officer Lourenco Goncalves said Tuesday at the Dahlman Rose
& Co. third annual Global Metals, Mining and Materials
Conference. "Of course, we dont have ... the exuberance
that we expected if the outcome of the (presidential) election
was different. But were still good because at least the
uncertainty of the elections (is) gone, and the certainty that
the fiscal cliff will be solved is helpful.
"Were not seeing anything
bad in front of us at this point in time," he added. "And even
more importantly, the U.S. industrial production numbers
continue to outperform the GDP (gross domestic product)."
In recent weeks, a number of
domestic mills have raised flat-rolled tags by some $40 to $50
per ton in response to higher raw material costs (
amm.com, Nov. 7). Goncalves said that the price
increases are a step in the right direction, although he warned
that fundamental change needs to happen in order to keep prices
higher in the long run.
"The last price movement is
giving me a little hope that the steel mills are waking up," he
noted. "Were seeing a serious movement in the direction
of higher prices that started with AK Steel (Corp.) increasing
$40 (per ton) that was well accepted. Mills cant afford
to go below cash cost."
He said that if mills remove the
scrap surcharges that were introduced into the market in 2004,
steel prices will become more stable.
Goncalves told AMM on
the sidelines of the conference that a number of other sectors
are also showing favorable signs of growth.
"The auto industry is
consistently good, and residential construction has finally
come back. I anticipate that in six to eight months,
nonresidential construction will pick up, too," he said, adding
that Fort Lauderdale, Fla.-based Metals USA is more focused on
specialty products, such as special bar quality (SBQ), over
larger markets, such as hot-rolled.
"Our margins are driven by
application and not on big products," he said.
Goncalves added that the company
will likely focus on acquisitions in the near term.
"Its a target-rich
environment right now," he said. "My appetite hasnt
diminished, and my discipline hasnt diminished, either.
(However,) were not a serial acquirer ... The main driver
for us to acquire a company is that the company, standing
alone, must have an Ebida (earnings before interest,
depreciation and amortization) margin higher than the entire
Ebida of the entire Metals USA."
Moving forward, Goncalves
forecasts stability for the domestic industry, citing increased
demand and stable conditions.
"We continue to see steel
consumption in the U.S. higher than production," he added.
"Despite all the conversations regarding overcapacity, we still
buy more steel at the end-user level than we produce in this
country. So its a good place to be, and it gives us
assurance that things will continue to go well."