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Steel market set for status quo: Tumulty

Keywords: Tags  iron ore, Jim Tumulty, Seaport, RG, fiscal cliff, policy, Europe, debt ceiling AWMI

NEW YORK — The domestic steel market is unlikely to see a significant rebound in 2013 due to recessionary issues in Europe and an uncertain political climate, according to Jim Tumulty, senior managing director at investment bank Seaport Group LLC.

"The domestic outlook for steel: Is the glass half empty or half full? We do not expect a major rebound in 2013," Tumulty said during an Association of Women in the Metal Industries regional dinner Jan. 14 in Carlstadt, N.J. "We think Europe will remain recessionary, there’s negative growth in Germany (and) most of the things that came as a part of the financial crisis remain."

"Suffice to say, we’re not entirely constructive about the market for ferrous metals in 2013," he said.

Iron ore, which has recorded a major surge in prices since the fall, has also been another source of uncertainty in the marketplace due to a lack of real demand, he said.

"I don’t understand the recent run-up in iron ore prices. ... The lack of follow-through for scrap prices and the turndown on finished product prices is further confirmation that the run-up is not driven by repeatable fundamentals," said Tumulty, who worked on a Seaport team that oversaw the sale of former steelmaker RG Steel LLC’s assets.

"Construction spending is still not even close to where it was before the credit crisis and is still at significantly depressed levels," he added.

Adding to the list of concerns is the United States’ alarming debt-to-gross-domestic-product (GDP) ratio, Tumulty said, noting that it has remained in the 100-percent range in recent years.

"Everyone thinks of Greece, with its current ratio of 146 percent debt to GDP. Well, it was 109 (percent) when Greece lost its ability to access the public markets, and we’re only 9 percent away from where Greece was. ... I don’t think the public is recognizing this enormous threat to their way of life," he said.

U.S. steelmakers have recently enjoyed low-priced energy, which many say is a bright spot in the current market. But Tumulty said that overregulation could end up hurting the industry longer term.

"I think the continual divide between the need to rebuild an industrial base and the current agenda of the current administration is going to continue to be a deep chasm and very adversarial process," Tumulty said. "I think it’ll take a significant part out of the certainty that business owners and managers need to take risks. It would be a shame if we squander a serious energy advantage to build our manufacturing base by being overzealous with regulations."

Looking forward, other issues still remain to be resolved, including the upcoming debt ceiling discussions on Capitol Hill. And with so much uncertainty, steelmakers and manufacturers just aren’t willing to make the investments they need to kickstart business conditions, he said.

"Taxes? We do have some clarity on taxes, and that’s (they’re) going to go up. That’s not the clarity we need," he said. "I know corporations are just sitting on massive amounts of cash and they don’t know what to do with it."

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