PALM DESERT, Calif. Nonresidential construction, one of the largest steel markets yet to show a significant recovery from the recession, could start to pick up later this year, according to one Citigroup Inc. analyst.
The overall construction market is "climbing out of the abyss," Brian H. Yu, director of U.S. metals and mining equities research at the New York-based companys Citigroup Global Markets Inc. unit, told members of the Association of Steel Distributors (ASD) this past weekend.
Residential construction, which tends to lead nonresidential building activity by a year or two, has been the primary driver of the construction markets recovery, Yu said. However, bidding on private and public projects is on the upswing and architectural billing activity is also on the rise, he added.
While its unlikely that a pickup in nonresidential construction would occur during the first half of 2013, Yu thinks that a rise in the second half is possible. Such an outcome would particularly affect long products such as beams and structural shapes, as well as reinforcing and merchant bars, he noted.
Steel market sources have pointed out this year that rebar is involved in residential and nonresidential construction, while the merchant bar market also has a strong manufacturing component. But demand for larger structural sections such as wide-flange beams, which largely depends on nonresidential building activity, has continued to trail demand for both rebar and merchant bar.
As Chinas rate of steel growth slows, a newly evident "seasonality" in the countrys raw materials demand could have an impact on the iron ore market, Yu also noted. While global iron ore supply normally rises over the course of a year, this wasnt much of a problem in 1997 through 2007 since Chinese steel production typically grew faster in the second half than during the first halfat "high single-digit and low double-digit" rates, Yu said.
However, Chinas second-half growth has trailed the first half in recent years and could have played a role in declining second-half ore prices, he said.
"This seasonality is coming into play," Yu said, noting that since Chinese steel output was relatively high in the first two months of 2013 production could be flat or even down for the rest of the year.
Citigroups commodity analysts in Asia also believe that the iron ore spot price could bottom out at less than $80 per tonne this year vs. a low of $90 per tonne last year, he said.