Planned starts of steel mill production capacity in the United States is likely to strain pricing for products key in automotive production and construction through 2011, according to a London-based steel research analyst.
Robert Edwards, managing consultant for CRU Group's steel team, said he describes the market as having "limited upside" after prices for products such as hot-rolled coil are just above $710 a ton in mid-July after peaking about $888 a ton in March. Severstal NA, RG Steel and ThyssenKrupp are among the companies Edwards named that intend to increase their raw steel production or steel processing capacity.
"The (profit) margin the mills are going to make are going to be constrained because there is overcapacity in the U.S. and that is probably the argument you'd see in the global market as well," Edwards said.
Edwards will make a full presentation on the outlook for the U.S. steel sheet market at CRU's fifth annual North American steel conference. The conference runs from Oct. 24 through 26 at the InterContinental hotel in Chicago.
In an American Iron and Steel Institute estimate released Monday, U.S. steel mills used about 76.8 percent of the available production capacity last week. Edwards said it's important for steel mills to get in a position to produce at high utilization rates because of the high fixed costs it costs for companies to operate.
Edwards said the financial crisis and global recession are still affecting the steel consumption market, although different sectors are telling different stories. Steel sheet demand within commodity and export-focused manufacturing are showing bright spots, he said. Construction, however, remains a drag on many steel products as a result of depressed levels of activity.
However, Edwards said the United States will benefit from a projected population increase in the coming years, yielding hope for higher demand levels compared to other industrialized nations such as Japan and those in western Europe.
Edwards expects about 50 million tons of steel sheet to be consumed in the United States this year, which is up from 32 million tons in 2009. However, the 2011 estimate is still a distance from the 69 million-ton pre-recession high.
For more information the conference, visit www.nasteelconference.com.