NEW YORK While the steel market is clouded by uncertainty, positive indicators in construction and continued strength in automotive point to brighter prospects for the future, the top executive at Steel Dynamics Inc. (SDI) said.
"The macro drivers predicting steel consumption ... (are) a reason for optimism in 2013 and certainly in the years ahead," Mark D. Millett, president and chief executive officer of the Fort Wayne, Ind.-based steelmaker, said in an April 18 earnings conference call.
"Automotive growth momentum remains very strong ... (and) residential construction appears to have sustainability," he added. "This bodes well for future non-residential construction as well ... (and) all of these macro factors we view as positive to our fold."
Automotive builds and other positive leading manufacturing indicators, as well as the U.S. natural gas boom, will be bright spots, Millett said, adding that a number of companies have significant cash positions, which will eventually lead to fixed-asset investments.
But the link between raw material costs, particularly scrap, and finished steel pricing remains an uncertainty for sheet and long products.
The consumer trend has been to boost buying ahead of a predicted scrap price increase and hold back on purchasing ahead of a predicted decrease, Millett said, causing increased volatility in the market (amm.com, April 18).
"Consumers are keeping inventories tight while taking advantage of short mill lead times," he added.
The flat-rolled outlook is still "a bit of a wild card," Millett said, adding that SDI has seen more "consistency" in its other steel divisions. First-quarter operating income for long products, for example, increased 16 percent sequentially, while that from its sheet operations fell 4 percent.
On the import front, Millett said that while global overcapacity persists, the parity in domestic and foreign pricing is preventing "meaningful import pressure today."
SDI also noted that its steel mill utilization rate rose to 89 percent in the first quarter from 80 percent in the fourth quarter, a rise it attributed to a "shift toward higher value-added products," particularly in its special bar quality segment. This led to a $5 increase in first-quarter average selling prices per ton shipped, to $789 per ton.
The company clarified, though, that its engineered bar product facilities were running at "substantially lower rates," so the uptick wasnt necessarily due to an increase in market share but rather a recovery of the market.
Meanwhile, SDIs 81-percent owned Mesabi Nugget LLC facility in Minnesota is on course to install additional oxygen burners and undergo other equipment modifications this month. Mesabi will ramp up production through the second half of the year, with losses from the operation expected to decrease and possibly disappear or hit the break even mark at year-end, Millett said.