NEW YORK Severstal North America Inc. doesnt see the steel sheet market turning around for at least another quarter because of global economic uncertainty, import pressure and lackluster demand, its top executive said. But some bright signs on the horizon, including growth in the construction sector, could boost near-term buying activity, he added.
"I dont think well see a pickup in the second quartermaybe in the third quarter or closer to year-end," chief executive officer Sergei Kuznetsov told AMM. "Around this time of year, we usually see the start of the construction season and restocking in the marketplace, which normally leads to a nice upturn. .... But were not seeing that. I think thats a sign that this year isnt going to be very good overall, because we have to deal with this uncertainty, low utilization rates in the industry (and) high import pressure."
The Dearborn, Mich.-based steelmaker saw its first-quarter production and sales volumes rise quarter over quarter but fall year over year in the absence of a seasonal uptick, Moscow-based-parent OAO Severstal reported April 22.
Severstal North America produced some 1.18 million tonnes of crude steel in the first quarter, up 13 percent from the previous quarter but down 8 percent from the same period a year ago. Production of liquid pig iron jumped 22 percent to 488,889 tonnes quarter over quarter and remained unchanged from the year-ago period.
Overall sales volumes rose 15 percent from the fourth quarter of 2012 to 1.11 tonnes, including a 15-percent increase in hot-rolled coil and plate, a 12-percent rise in cold-rolled coil and a 17-percent increase in galvanized and metallic coated coils. However, sales volumes fell 9 percent year over year.
Average selling prices for the companys rolled products slipped to $808 per tonne in the first quarter, down 1 percent quarter over quarter and down 7 percent from the same period in 2012. Kuznetsov added that decreases in the price of hot band were offset by a greater share of higher-value and higher-priced products, such as cold-rolled and galvanized steels, in the overall product mix.
By sector, automotive and energy end markets remain a bright spot for the steelmaker due to continued strong purchasing volumes. "By far, this (automotive) is the best market," he said.
Kuznetsov said that the company is "working closely" with pipe manufacturers to supply higher-quality grades of material, noting that a number of domestic and foreign players have announced major expansion plans for additional pipe and tube capacity.
"Were trying to offer new pipe grades and the new characteristics required in hydraulic fracturing," he said. "Were (also) completing trials in the line pipe sector to get into the X70 API grade marketplace."
Last year, Severstal announced that it was studying the feasibility of constructing a direct-reduced iron facility, suggesting a further step toward vertical integration (amm.com, Jan. 10, 2012). However, Kuznetsov said that the company has no plans to move forward at this point.
"We decided against building our own capacity at this point," he said. "Were more focused on negotiating an off-take agreement to buy DRI from a producer. But as a return on our investment, we decided against building DRI plants in Trinidad or the United States."
On top of input expenses, selling costs are also a concern to the steelmaker. Last week, the company told customers that it would no longer sell against a discounted CRU index price because the approach does not properly reflect market conditions (amm.com, April 18). Some sources say such a move will help solidify the spot market.
"We informed our customers of the shift out and away from the discounted practice," Kuznetsov said. "We think its going to be the new reality in the marketplace, and that this move should help us sell and get fair prices that are more aligned with the situation for our products.
"I can tell you that well offer firm pricing, well definitely honor all existing contracts, and well go from there," he added.
Looking forward, Severstal NA expects the U.S. market to remain a bright spot, particularly as economic uncertainty and overcapacity plague places like Europe and Asia, Kuznetsov said.
"Were bullish on the U.S. market overall. I think this will be a difficult year, (but) the U.S. market has structural advantages at this point," he said, "Theres good restoration of the housing market, and at some point, non-res(idential construction) will kick in.
"That will be the pivot point for the industry, (because) thats probably the only segment thats lagging," Kuznetsov added. "Mid-term and long-term, we think this market will remain the most attractive market in the world."