After a rough few years in which Northwest Indiana’s steel mills idled finishing lines and trimmed headcount, the steel industry largely rebounded in 2017.
Steelmakers have been mostly profitable so far this year, except for U.S. Steel, which said it failed to capitalize off rising prices and improving market conditions after having put off maintenance, reducing its production.
U.S. Steel did swing to a $261 million profit in the second quarter, as compared to a loss of $46 million in the second quarter of 2016. The Pittsburgh-based steelmaker, one of the Region’s largest employers, recovered from a $1.4 billion first-quarter loss and expects to make at least $300 million in profit this year if market conditions hold up.
ArcelorMittal turned a $2.3 billion profit over the first six months of 2017, as compared to $696 million over the same period the previous year. ArcelorMittal expects to be able to invest $1.5 million in capital in its operations worldwide this year, up from $1 billion the previous year.
“Current market conditions are improved compared to twelve months ago with steel spreads currently at healthy levels,” the Luxembourg-based steelmaker said in its second quarter earnings report. “The demand environment is positive, as evidenced by the highest readings from the ArcelorMittal weighted Purchasers’ Manufacturing Index since April 2011, which suggests that steel shipments in the second half of 2017 will be higher than would normally be suggested by seasonality alone.”
Sales have been buoyed by high steel prices, which stood at around $672 per ton of hot-rolled as of Oct. 9, according to Steel Benchmarker. That’s up drastically from the price of just above $400 a ton it hovered around in early 2016.
“Looking ahead demand remains strong in our core markets supporting robust order books and healthy levels of steel spreads,” ArcelorMittal Chairman and Chief Executive Officer Lakshmi N. Mittal said in the second quarter earnings report. “However, it remains a matter of concern that we are not able to capture the full benefits of this demand growth due to continued high levels of imports. We continue to work towards achieving a comprehensive trade solution in response to unfair imports."
Steel imports have grabbed a near-all-time record 27 percent of the market share so far this year, according to the American Iron and Steel Institute. Foreign steel prices have however started to rise as China has begun to become a net import, and should not be as competitive when freight charges and shipper’s profit margins are factored in, said steel industry analyst Charles Bradford with New York City-based Bradford Research Inc.
Washington, D.C., has even talked of imposing even more tariffs and possibly quotas of foreign steel, even though the steel industry only accounts for a 100th of 1 percent of the employment in the country, Bradford said.
“China lost some trade cases a few years ago,” he said. “They now account for maybe 2 percent of imports.”
While steelmakers all over the world have pointed to China as a source of a global glut of oversupply, tariffs of up to 500 percent have curtailed many of the Chinese imports to the United States, Bradford said. And the Chinese economy has been evolving to where it doesn't need to produce or consume so much steel.
"They're generally built the infrastructure, which is the steel-intensive phase," Bradford said. Now China is entering the consumer goods phase, which doesn't require as much infrastructure spending or steel. But they still have half their people in poverty, so they still have to lift them out."
But imports remain near record highs, around the level in the early 2000s when most U.S. steelmakers went out of business. This year, the largest offshore suppliers of steel to the United States, excluding neighboring Canada, are South Korea, Japan, Taiwan, Turkey and Germany.
Domestic support sought
Further tariffs have not yet materialized, nor has the $1 trillion infrastructure plan the Trump administration pitched, which would bolster demand for steel.
“If the infrastructure bill does pass, it’s going to mean jobs in construction of high-rise buildings and businesses and highways and bridges,” he said. “If there’s not that spending it doesn’t help that industry."
U.S. steelmaking capacity utilization stood at 74.6 percent last week, according to the American Iron and Steel Institute. But steelmakers are running at around 90 percent at the big integrated mills that serve automakers and appliance manufacturers, such as those around Lake Michigan, while the bar mills in the South that feed the construction industry are only running at 60 or 65 percent, Bradford said.
But big integrated mills that create new iron instead of just recycling scrap, such as those that ring Lake Michigan, have been investing in their equipment. U.S. Steel for instance recently poured around $80 million into its hot strip mill at Gary Works.
“Generally, steelmakers are making more money,” Bradford said. “They’re operating at a higher rate. Production is a little bit up.”
The AISI estimates steel industry production is about 3.7 percent up in the United States this year.
“How that’s compared to what the economy is doing?” Bradford asked.
And he has reason to be optimistic about where the steel industry is going. States have been pursuing their own infrastructure projects, such as a $4 billion bridge in New York.
"With automotive, generally the forecast is down but it might remain flat," he said. "That's not terrible. We had some really bad years not that long ago. Production is up. Most of the steel companies are profitable. The third quarter might be weak, but it's never strong for steel. Prices are a little bit lower, but companies are mostly profitable and mostly doing OK."