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Steel to see modest growth for 2013: analysts

Keywords: Tags  steel, growth forecast, steel outlook, special bar quality, SBQ, OCTG, oil country tubular goods, Mark Parr KeyBanc Capital Markets


NEW ORLEANS — The steel market should see flat to modest growth this year, according to industry analysts, as a number of sectors don’t expect to have the same growth levels seen in 2012.

The growth seen in the automotive, home appliance and defense industries last year hasn’t carried into 2013 as strongly as expected, analysts and market participants said during the Critical Commodities Conference hosted by the American Institute for International Steel and the Port of New Orleans.

This year "is off to an unusually slow start. There were some big changes. SBQ (special bar quality) and OCTG (oil country tubular goods)—both of those markets have cooled dramatically in the face of overbuying in the first half of 2012," according to Mark L. Parr, managing director and steel analyst at Cleveland-based KeyBanc Capital Markets Inc. "Pricing power has not been restored despite imports coming off here in early 2013. And our anecdotal inputs ... every time we go out and make a round of calls, the comments are that things continue to feel weaker."

The demand outlook for the energy end markets, among others, looks "fairly flat this year," Parr said.

While automotive production is expected to increase, those levels will remain in the single digits, particularly after a "very strong" 2012, he said, noting that the home appliance sector is also set for single-digit growth.

"Looking at the defense budget procurement, things continue to look very negative. Part of that is ending wars and part of that is sequestration," Parr said.

But not all steel-related news for 2013 is grim. Construction is expected to see a modest 7- to 7.5-percent pickup after seeing growth of about 5 percent in 2012. Participants tied to the shale plays in particular, including those who manufacture alloy and high-quality niche steels, can expect gains in years to come due to the increased need for more technical horizontal drilling and the favorable outlook on shale gas in the United States.

Yet while the domestic markets look flat, the trading community should expect a difficult road ahead due to short lead times and recent softening in U.S. hot band prices (amm.com, April 10).

"Customers are less willing to go offshore because of price volatility," according to Richard S. Dougherty, vice president of sales and marketing at the Cargill Ferrous International steel trading division of Minneapolis-based Cargill Inc. "People’s purchasing patterns have changed."

The iron ore market is heading into oversupply, driven by Tier I, II and III producers all expanding production, he added.

"The trend is negative for import momentum," according to Parr.

Looking forward, some say that for fundamental changes to happen—for real growth in the markets—a combination of adjusted expectations, reduced supply, a renewed construction sector, and a greater spread in pricing between domestic and foreign material must come to fruition.

"One glaring piece of the market is that construction hasn’t come back, but it’s recovering quickly," Parr said. "We’re moving into a scary time right now into the second half. There are high expectations, but the economy is far from fully recovered."


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