NewsArticles
Minimize


Oct. 2, 2013

Bradford: Keep Eye on Construction, Raw Material Costs in 2014
 
The auto industry garners more of the headlines, but nonresidential construction is actually the largest consumer of steel in the United States. Construction of such projects as highways, strip malls, hospitals and schools consumes many steel products, from rebar to structurals and plate to pipe. Nonresidential construction typically lags housing by a year or two. Thus the improving residential construction sector bodes well for nonresidential in 2014. “Next year could be the breakout period,” said analyst Charles Bradford of Bradford Research in New York, who addressed the National Association of Steel Pipe Distributors conference in Chicago Sept. 20.

Trends in automotive are working against its consumption of steel. For one, government standards are forcing automakers to make vehicles more fuel efficient, which means making them smaller and lighter. “Even where advanced high-strength steel is the replacement material, there will be less pounds of steel per car than there are today,” Bradford said. The increased fuel efficiency means reduced gasoline consumption—and reduced revenues from the federal gasoline tax, which is the major source of funding for highway construction and repair. “Thus highway spending has been reduced,” he added.

In the current steel market, furnace outages at various mills have caused supply to tighten, propping up steel prices. But scrap prices have begun to soften due to the resulting decline in demand, making the price trend unclear.

Adding another wild card to steel price forecasts is the effect of minimills’ investment in scrap processing operations, Bradford said. “Those minimills that bought steel scrap processors and push these companies to get lower scrap costs only serve to force steel product prices to decline, which is a losing game.”

Increased use of direct-reduced iron as a feedstock for mill furnaces could put additional pressure on scrap prices, Bradford said. Pointing to Nucor’s new DRI plant nearing completion in Louisiana, he noted, “If this technology works as advertised, 2.5 million tons of DRI will add materially to available iron units in the U.S. and could possibly bring down scrap prices.”

Initially, Nucor’s DRI usage will most likely displace its pig iron imports from Brazil, but its second planned DRI plant could affect scrap more significantly, Bradford said. Three other groups reportedly are considering construction of DRI plants, prompted by low natural gas prices that make DRI production economical. “If much of this gets built, scrap prices in the U.S. could be materially reduced, which ought to make the integrated steelmakers even less competitive,” he added.

Meanwhile, the supply of iron ore is expected to balloon in the next five years as the top five producers in the world are planning to increase their output by 50 percent. “There is so much iron ore capacity under construction around the world that iron ore prices could be in a free fall within the next couple of years. This is where Chinese growth becomes quite important,” Bradford continued.

China alone accounts for nearly half of total world crude steel production. By contrast, the U.S. produces less than 6 percent. Chinese steelmakers are huge importers of steelmaking raw materials, especially iron ore and coking coal. How much steel they will produce—and ultimately how much they will affect the cost of iron ore and scrap on the world market—depends more on politics than economics, Bradford said.

“There is one underlying factor that drives much of what happens in China, namely that the “Party” wants to remain in power. Nothing else really matters to the rulers in China. Nearly all government actions are aimed at keeping the public compliant with social stability. Thus the overriding focus in China is on inflation and employment. Any time the CPI increase approaches 4 percent, expect government policies to slow their economy.”

From the Editor's Desk
Minimize
July 2014: Paper or Pixels? New MCNDigital Offers New Choices
More...
 
Pause
Business Practices and Technologies
Minimize
July 2014: Manage the Slow-Movers to Boost Inventory Turns
More...
The Cutting Edge, a service center technology supplement to Metal Center News
More...
Summer 2013
More...
 
Pause
New Products
Minimize
Trumpf Expands Range on TruMark 5000 Series
More...
Koike Aronson Debuts New Plasma Cutter
More...
Miyachi Unitek's Sigma XY
More...
New TMC is Messer's Largest Cutting Machine
More...
Laserdyne 795 XLZ Designed for 3D Parts
More...
Mazak's STX Champion Cuts Thick Sheets
More...
 
Pause
Directories
Minimize

 
Metal Distribution 2014  is your on-line guide to Metal Producers, Equipment Manufacturers and Software companies.
 



 
2014 Directory of Master Distributors
Not Published on This Web site
The Metal Center News Directory of Master Distributors—distributors who sell to other distributors—is an invaluable tool for service centers seeking new sources for special or hard-to-find products. Master distributors play an important role in the marketplace, giving service centers an alternative to buying in mill quantities and helping to remove redundant and excess inventories from the distribution channel.


Print copies are available for $85 U.S. for each copy.
Download Order Form.
 
2014 Directory of Toll Processors
Not Published on This Web site
Metal Center News'
annual toll processing directory is a simple-to-use resource to help companies locate service providers that can meet their specific processing needs.


Print copies are available for $85 U.S. for each copy. Download Order Form.
Privacy Statement  |  Terms Of Use
Copyright by Metal Center News



Thursday, August 21, 2014