TAMPA, Fla. Despite a definite chill in the air late last week in West Central Florida, veteran steel analyst Charles Bradfords outlook for this years steel industry was generally sunny during the 25th annual Tampa Steel Conference held Feb. 6-7 in Tampa.
"Generally, my presentation is optimistic," Bradford, principal of New York-based Metals Industry Advisory Group LLC, told some 250 attendees at the event.
"But there is a Black Swan to worry about," he said, referring to the unknownand usually negativefactor that analysts fail to account for in their forecasts.
Much of the optimism referenced by Bradford is rooted in a long-awaited rebound in nonresidential construction. "Thats what has been lagging. But it should have lagged. ... It has always lagged housing by two years," Bradford said.
"(This year), we think, is going to be the year when nonresidential construction starts to pick up. ... Realistically, thats the largest market for steel. It accounts for some 40 percent of domestic steel consumption," he said.
"I think we are going to see 3- or 4-percent growth in steel shipments," Bradford forecast. "I believe 2014 is the year of turnaround for steel. Thats when nonresidential construction comes back. We think 2014 is going to be a good year. Theres no reason 2015 is not going to be better."
While acknowledging that the automotive industry looks a "little shaky at the moment," given high inventories, he said "that (shakiness) can disappear very quickly. A couple of good sunny days and people will go out and buy cars again, especially given all the accidents and damage done during the winter. ... We are going to need a lot of replacement cars."
Focusing in on one of the hottest topics on the steel circuitDearborn, Mich.-based Ford Motor Co.s shift to aluminum in key components of its best-selling F-150 pickupBradford described the development as a major breakthrough, but moved on to what he considers a greater threat to steelmakers future.
"The steel industry has its own competitive product called advanced high-strength steel. ... It accomplishes the same thing as aluminum at lower cost," he said.
"If this product is successfuland we have every reason to believe that it can be if they market it halfway wellit means 20-percent less steel in a car. They have to reduce the weight of the car 20 percent to meet mileage requirements," Bradford said.
"Will the steel industry be able to raise their prices to offset that 20 percent?" he asked. "They never have in the past. ... For selling a better product, you should get a better price. Thats the real solution."
And the Black Swan? There are more than a few possibilities to pick from, although by its very nature the Black Swan is an unknown. Candidates range from higher interest rates, Bradford said, to developing country currency collapse, another bank crisis and the impact of lower raw material costs on steel company survivability.