| March
2005 Association News |
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‘Negatives
Hard to Find for Steel Industry’ January
imports of 2.4 million tons—while up slightly compared with
January 2004—showed an 18 percent reduction from December,
possibly reflecting the ongoing inventory adjustment in the market.
According
to 12-month figures for 2004, imports increased 54.8 percent compared
to 2003, or from 23.13 million tons in 2003 to 35.81 million tons
in 2004. The
U.S. industry increased steel shipments by almost 6.5 million tons,
while finished imports increased almost 10 million tons in 2004.
Profitability of U.S. steel producers was at record levels, even
with large increases in raw material costs. U.S. exports of steel
posted a small decline of 3.5 percent, as many mills put their customers
on allocation in response to strong domestic demand. Many customers
reported serious shortages of some products during the course of
the year, Phelps says. By
year end, it was clear that inventories had risen to levels that
outpaced consumption, which softened prices from their record highs
in the late third and early fourth quarters. The process of inventory
liquidation continues into the first quarter, with long products
expected to lead the way out of the inventory-driven pause in the
market, Phelps says. Most
market-watchers believe the second quarter will bring a return to
stronger markets, though not at levels seen during the peak of 2004.
As
in 2004, international factors may play a major role in U.S. market
conditions, Phelps says. Demand and prices are rising in China,
Russia, Ukraine, India, Brazil and other markets, which could have
an unknown ripple effect on North America and other parts of the
world. “Negatives are hard to find for the U.S. economy and the steel industry,” Phelps adds. China’s
Undervalued Yuan The
China Currency Coalition, responding to Department of Commerce annual
trade statistics, noted that the U.S. trade deficit with China grew
over 30 percent in 2004. At this pace, the bilateral trade deficit
with China will more than double in three years, which the coalition
says is a significantly shorter timeframe than earlier projected.
Of major concern to the coalition was the data reflecting that imports
have outpaced exports during 2004. U.S. imports from China increased
29 percent, while U.S. exports to China grew only 22 percent. “The
undervalued yuan continues to push the bilateral deficit to record
heights, depressing employment in the manufacturing sector and threatening
the global financial system,” said David A. Hartquist, spokesman
for the coalition. “Global markets cannot sustain the accelerating
imbalances that result, in large part, from China’s undervalued
exchange rate.” The
coalition describes 2004 job growth in the manufacturing sector
as anemic, attributable to competition from Chinese products that
effectively are subsidized by the 40 percent undervalued yuan. While
non-farm employment increased by 2.2 million jobs last year, manufacturing
employment increased by only 33,000 jobs over the entire year, and
actually declined since August. The December decline alone amounted
to 25,000 jobs. Since the recession in 2001, employment in the manufacturing
sector declined by 2.9 million jobs, the coalition reports. China’s
undervalued yuan continues to destabilize global financial markets.
China’s foreign exchange reserves increased to $609.9 billion
in 2004, a 41 percent increase since 2003, and amounting to more
than a third of China’s GDP. In addition, the money supply
continues to increase at a rate of 12 to 13 percent and official
estimates of inflation exceed 5 percent, a significant increase
over the 1 percent deflation of two years ago. AISI For
full-year 2004, steel shipments were 112,085,000 net tons, representing
a 5.8 percent increase from the 105,974,000 net tons shipped in
2003. A year-to-year comparison of shipments shows the following changes within major market classifications: service centers and distributors, up 4.6 percent; automotive, up 4.9 percent; construction and contractors’ products, up 4.9 percent; oil and gas, up 13.5 percent; machinery, industrial equipment and tools, up 20.2 percent; appliances, utensils and cutlery, up 1.5 percent; containers, packaging and shipping materials, up 1.0 percent; and electrical equipment, down 5.1 percent. IISI China
again showed strong growth with production of 25.1 million tons
in January, up 24.3 percent compared with the first month of 2004.
Excluding China, worldwide production of crude steel grew by 3.4
percent over January 2004. Production
in the 25 European Union countries was 16.3 million tons in January,
an increase of 2.3 percent over the same month last year. Production
in Italy grew by 11.5 percent compared to the same month in 2004.
Austria produced 646,000 metric tons of crude steel in January,
a rise of 17.3 percent. Crude
steel production rose by 4.0 percent in Russia to reach 5.5 million
tons in January. Production in the CIS countries hit 9.5 million
tons in January, a rise of 2.3 percent compared to the same month
of 2004. In
North America, both Mexico and the United States showed growth.
Production in the United States was 8.3 million tons, a rise of
5.3 percent, while Mexico produced 1.5 million tons, up 8.0 percent
vs. the same month in 2004. Overall,
crude steel production in South America remained static at 3.7 million
tons for January 2005. Asia again showed the strongest growth with total production of 43.5 million tons of crude steel in January 2005. This is 15.2 percent higher than for January 2004. ISM
However,
only 17 percent are expecting order backlogs to decrease over the
next three months, and more than half are operating at or above
their most efficient levels of operation. Current shipments are
the same, or above, three months ago for 61 percent of respondents,
an improvement from 42 percent in January. CBSA January 2005 shipments were about the same as in January 2004, though the number of shipping days may have varied due to holidays and weather-related delays. SSINA
PMA Two
PMA members testified at the hearing, including Wes Smith, president
and CEO of E&E Manufacturing, and Dennis Keat, CEO of the Su-Dan
Corp. and chairman of PMA. Also testifying was William E. Gaskin,
PMA president. Every
five years, the ITC conducts a sunset review to determine whether
to terminate, suspend or continue specific duties levied as a result
of an anti-dumping/countervailing duties investigation. There are
currently 188 AD/CVD orders in place on various types of steel needed
by U.S. manufacturers, many of which have been in place since the
early 1990s. “Millions
of steel-consuming manufacturing jobs depend on the steel industry,”
testified Gaskin. “We know that these orders, if left in place
during a period of unprecedented prosperity for steel producers,
will distort the market for years to come and put our members at
a chronic disadvantage to their foreign competitors.” Gaskin
said that metalforming companies are the largest consumers of flat-rolled
steel in the United States. Flat-rolled steel is the largest cost
for most metalforming companies, comprising 40 to 60 percent or
more of their sales dollars. “When steel is in short supply,
small businesses are the first to suffer. Small, middle-market metalforming
companies are powerless to resist price increases from their steel
suppliers, and they often have little ability to pass along increases
in steel costs to their customers.” Smith
and Keat, two small business owners, described the difficulties
they are facing in the current steel marketplace, including escalating
steel prices, reduced availability and quality issues. PMA representatives will also testify at an April 26 sunset review hearing on stainless steel sheet and strip from eight countries. Survey
sees steady conditions Forty-three
percent of respondents expect business conditions to improve, while
50 percent expect activity to remain the same. Metalformers are also expecting little change in incoming orders during the next three months, and the number with a portion of their workforce on short-time or layoff has remained virtually unchanged for the last few months. MSCI/PMA/NAM “In
the midst of an economic recovery, it is easy to forget the critically
important structural issues that continue to erode the strength
of our durable goods manufacturing sector,” said Martin J.
Napoli Jr., president of NAPCO Steel Inc. of West Chicago, Ill.,
and president of MSCI’s Central States Chapter. “In fact,
even with a weaker dollar, the cost advantages of manufacturing
in China and other Asian industrial centers are substantial, and
we continue to see factory closings and production shifts away from
North America. If we are to survive as a manufacturing nation, we
must all be aware of the problem, understand the issues, and be
prepared to defend our manufacturing base.” Speakers at the meeting, to be held at Drury Lane in Oakbrook Terrace, Ill. will include Dr. Joseph Massey, director of the Center for International Business and professor at the Tuck School of Business, Dartmouth College; William E. Gaskin, president of the Precision Metalforming Association; Stephen V. Gold, vice president of the National Association of Manufacturers and executive director of its Council of Manufacturing Associations, which represents more than 200 manufacturing trade associations; and M. Robert Weidner III, president and chief executive officer of MSCI.
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