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Steel market expected flat for 2013

Keywords: Tags  flat-rolled steel, 2013 outlook, steel, IHS Global Insight Inc.,

Plagued by political uncertainties at the tail end of 2012, flat-rolled steel market players say they expect pricing in 2013 to be on par with last year, with both buyers and sellers expecting little to change in terms of underlying steel demand.

“We don’t expect a robust recovery,” a source at one steel sheet and plate distributor said.

Sources agreed that while they expect an uptick in demand after the slowdown during the third and fourth quarters of 2012, they believe overall demand will be relatively flat year over year.

“During the first part of 2013, you may see a little activity because people are at low stocks and replenishing, but whether 2013 will be stronger than 2012 ... 2012 was a weak year and we don’t see any dramatic uptick coming,” one mill source told AMM. People have curbed their hopes that demand will be anything more than stable for steel products, although some sectors will continue to keep the market afloat.

“For (2013), we think demand will be fine for the industry as a whole,” a flat-rolled service center source said. He noted that the agriculture, automotive and energy sectors are particularly robust and should help prop up overall demand for flat-rolled steel products. According to Lexington, Mass.-based consultancy IHS Global Insight Inc., automotive demand in 2013 will continue to be strong. And the construction sector is expected to remain relatively stable into 2013, although some sources point to indications of a rebound.

“Everyone is starting to gain a little more confidence of a good, healthy recovery in residential (construction) spending, which will boost commercial (construction),” a financial analyst said, citing the American Institute of Architects’ architectural billings index (ABI), a leading indicator of construction. Toward the end of 2012, architecture firms reported strength in business conditions, with the ABI rising for a fourth consecutive month in November.

“Construction is tending in the right direction,” a second mill source said. “I think the back half of the year will be better than the first.” In nonresidential construction, “I think there’s huge pent-up demand.”

Steel gets its biggest building boost from commercial construction, which is lagging residential construction, the financial analyst said. Without demand from the construction sector, domestic mills have been muddling along at capacity rates just above 70 percent, sources noted. Raw steel production in September hit 70.4 percent, its lowest point of 2012, according to data from the American Iron and Steel Institute.

It is unlikely the utilization rate will change much in 2013, according to Charles Bradford, president of New York-based Bradford Research Inc. He noted that with the former RG Steel LLC out of the mix--the Sparrows Point, Md.-based steelmaker filed for bankruptcy protection in 2012 and is no longer operating--the overall industry rate will tick up “a little bit, but not by much.”

Sources agreed that it will take a construction rebound to push operating rates higher, but not everyone in the steel industry is convinced a construction rebound is on the horizon for the second half of 2013, or even early in 2014.

“I’ve been hearing that for years,” the flat-rolled distributor source said, noting that the steel industry has been hoping for a rebound every year since the economic crisis.

“I’m looking at a tough row to hoe here,” said a source at a distributor who specializes in coated materials for the construction sector.

Other major steel consumers, such as heavy machinery producers that are major consumers of heavy steel products, including plate, have dimmed their outlooks. For example, mill sources pointed to concern over Caterpillar Inc.’s more-pessimistic outlook for 2013.

And amid the uncertainty over demand and business conditions, sources agreed that sustained pricing volatility is not going anywhere in 2013.

A strengthening in flat-rolled steel prices toward the end of 2012 likely will start to dwindle halfway through the first quarter of 2013, steel buyers said.

“January and February look strong,” the first sheet distributor said, noting that he expects raw material costs to continue to support steel products pricing for at least the first couple of months of 2013.

“Mark my words, come February the bottom will fall out,” a second flat-rolled distributor source said.

Some noted that the uptick in pricing for flat-rolled products came thanks to a series of price increase announcements rather than any change in supply-demand fundamentals.

“This masks the real situation relative to demand,” the coated materials distributor source said. “We get caught up in these short-term spikes ... (but) we’ve got an overcapacity situation.”

What will happen beyond the first quarter in terms of pricing strength remains to be seen. “It’s month-to-month,” a second plate and sheet distributor source said.

Regardless of the uncertainty, one thing is certain: Steel market players are managing their expectations of any growth in steel demand in 2013. “Overall, our expectations are that (2013) will be in line (with 2012),” a third mill source said.

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