Steel industry building toward rebound

2013-07-01T00:00:00Z 2013-12-18T10:55:12Z Steel industry building toward reboundJoseph S. Pete, (219) 933-3316

The steel industry continues to struggle despite rising orders from automakers, who have added third shifts and new employees to keep pace with their turbocharged sales.

Most of the rest of the market for steel remains weak, but an analyst predicts a brighter outlook for the second half of this year. New York-based steel industry analyst Charles Bradford said robust auto sales and improving economic conditions could start to lift the fortunes of steelmakers this year, though the year-end numbers should still be down.

Others, including U.S. Steel Corp. Chief Executive Officer John Surma, have predicted that recovery won't take place until 2015. But demand could tick up slightly next year if there's a healthy amount of economic growth, Bradford said.

Demand for steel has not yet recovered to pre-recession levels, said Hammond-based Berlin Metals President Roy Berlin. Domestic mills shipped an estimated 89 million tons of steel last year, or about 8 percent less than in 2007.

A major obstacle has been that nonresidential construction remains sluggish, and that market accounts for about 50 percent of the domestic demand for steel, Berlin said.

More shopping centers, office buildings, schools, and bridges will have to be built for the steel industry to turn around.

Steelmakers face other challenges, including low steel prices, high fixed costs, cheap imports and overcapacity.

Domestic steel mills have only been running at a 76.8 percent capacity utilization rate so far this year, according to statistics from the American Iron and Steel Institute. That's down from a near 90 percent rate in 2008, before the economic downtown gutted the demand for steel.

Production is down by about 6.2 percent so far this year, and shipments are down by 6.3 percent. ArcelorMittal and U.S. Steel both posted net losses in the first quarter, and their stock prices have plunged since the beginning of the year.

Locally, U.S. Steel has operations in Gary, East Chicago and Portage, while ArcelorMittal has integrated mills in East Chicago and Burns Harbor, a research and development facility in East Chicago, a hot strip mill in Riverdale, a plate mill in Gary and processing and finishing joint venture facilities in New Carlisle.

Standard & Poor's Rating Services has downgraded both steelmakers' credit ratings to junk grade. The firm recently lowered U.S. Steel's corporate credit rating from BB to BB- because of the weak market conditions for steel.

"The prices are too low," Berlin said. "It's difficult when input costs are high."

Mills with blast furnaces have significant fixed costs, such as for coke, coal and iron ore. The prices of some of those raw materials rose in the first quarter, but steel prices have recently been too low to recoup those costs.

ArcelorMittal, U.S. Steel and other steelmakers have been trying to raise prices, but they face competition that's willing to sell for less, Berlin said.

"There's too much capacity," he said. "There's foreign competition that's dumping steel at low prices. There's the demand function of the economy."

Developers haven't been building the shopping malls or office buildings that would require steel beams. Governments haven't been constructing new roads or bridges.

Construction has been gradually picking back up, and steelmakers are doing much better overall than they were during the height of the recession, when shipments dropped by more than 40 percent in a year, Berlin said. But the still-depressed construction environment has slowed down the steel industry's recovery, since it relies so heavily on new construction.

A positive sign is that new home construction has been picking up, and commercial construction usually follows, Bradford said.

"You need the housing developments and the population before you start to see the shopping centers, the schools and the factory buildings," he said.

Continuing improvements in the economy and nonresidential construction should boost steel shipments, Bradford said.

"I think we're going to progressively get better after the big dip in the first half," he said. "The shipments will still be down compared to last year by the holidays, but not by as much as they are now."

In 2014, demand for steel could increase by 1 percent or 2 percent if the overall U.S. economy grows at a rate of 3 percent, Bradford said.



Copyright 2014 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Follow The Times

Latest Local Offers

Featured Businesses

In This Issue

Professionals on the Move Banner
Get weekly ads via e-mail



Should Hammond police restore full-time participation in the Region STOP Team?

View Results