June 2017
Minimize


Solid Demand Buoys Executives' Spirits

Representatives of North America’s leading service centers and mills sounded off on a host of topics involving the industrial economy at MSCI’s annual gathering in May.

By Dan Markham, Senior Editor

Demand for steel and other materials is on the upswing, a welcome change after a series of challenging years for the metals industry. Executives from both service centers and mills expressed optimism about the appetite for their products at last month’s Metals Service Center Institute annual meeting in Miami.

“Demand has improved. It doesn’t have us crying the blues,” said Gregg Mollins, president and CEO of Reliance Steel & Aluminum Co., Los Angeles. Mollins cited aerospace as one of his company’s hottest markets. With solid build rates and backlogs that stretch 7-8 years, the industry should remain healthy for a while.

Automotive, which has driven the metals market for nearly a decade, is likely to slow modestly this year, but remain at historically healthy levels, the panelists agreed. In contrast, the energy market, a laggard in recent years since the precipitous decline in oil prices, is already bouncing nicely off the bottom.

“I’m feeling optimistic about energy,” said John Ferriola, chairman and CEO of Nucor Corp., Charlotte, N.C. He credited not just the increase in rig counts for that sentiment, but the greater amount of steel going into progressively deeper wells.

Chuck Schmitt, president of SSAB Americas, Lisle, Ill., said the domestic plate industry saw its lowest shipment levels since 2009 last year, but energy and nonresidential construction offer a lot of upside.

Eddie Lehner, president and CEO of Chicago-based Ryerson, urged the audience to keep today’s demand increases in perspective, as they are still offsetting big declines in consumption over the past three years. He noted in particular that the country’s failure to truly invest in infrastructure and equipment is responsible for lower steel consumption. “Somehow we’ve confused what an investment is. We should keep investing if we want to see the fruits of it.”

While steel demand is on the rise, supply is another matter. The mill executives both expressed concern about the global oversupply situation and its impact at home. They found an ally in Mollins, who chastised his service center industry for its reliance on foreign product. Reliance purchases about 95 percent of its steel from domestic suppliers, he said. Foreign material wouldn’t have such an outsized effect on the domestic market if it didn’t have so many willing buyers. “We’re writing the purchase orders. We don’t have to [buy foreign],” he added.

Without more self-policing by service centers and other buyers, imports will remain a significant portion of the domestic market. One problem with the United States’ approach to unfairly traded material is the length of time it takes to resolve a trade case. The industry is still working through cases that originated in 2015. The process is long, complicated and expensive for domestic companies to get relief, Schmitt said.

Ferriola, whose company has been the loudest voice on unfair trade, said he is genuinely hopeful that meaningful change will finally come out of Washington. The “pro-business” bent of the Trump administration, with former steel executives in positions of relevance, coupled with a greater understanding of global overcapacity and the threat posed by the dumping of foreign steel, is cause for optimism, he said.

In addition to action on the trade front, the panelists agreed that a major infrastructure build would be the best shot in the arm that Washington could deliver to the steel industry. “If we don’t do something soon, there’s going to be a catastrophic failure with the loss of life, and suddenly everybody in Washington is going to say we need to fix our infrastructure,” Ferriola said.

For the U.S simply to adopt a comprehensive industrial policy would be a welcome change, Lehner said. “I’d like to see legislation that has manufacturing as a priority.”
Regulatory reform was also high on the panel’s priority list. Holman Head, president and chief operating officer of O’Neal Industries, Birmingham, Ala., said many new regulations were well-intentioned, but their effect is ultimately damaging, requiring significant time and energy for compliance.

Lehner pointed to the conflict minerals regulations as an example. While a guideline of reasonable assurance that companies are not dealing in conflict minerals is workable, the standard of absolute assurance is simply not attainable. “You have to look at the cost-benefit and pull regulations where the cost well exceeds the benefit.”

Following up on a previous speaker’s topic, moderator Bob Weidner asked the panel how service centers are dealing with disruptions in the economy. Lehner noted that services such as Uber, Open Table and the iPhone, all used by executives in the room, demonstrate how customers will begin to re-evaluate their relationships with service centers. Paraphrasing Amazon’s Jeff Bezos, Lehner said “no one wants to pay more to have less selection and to get it later.”

Schmitt pointed out that technological advancements are not just an opportunity, but a threat, pointing to a German steel mill that was hacked in 2014. Companies of all types are vulnerable to cybercrime. Likewise, social media is a force for both good and bad. “The airline industry knows how social media can be disruptive to your business.”

In many ways, Mollins said, his company is the disruptor in the service center sector. Reliance’s position as the industry’s leading acquirer forces the companies it purchases, and their personnel, to adapt to the Reliance culture and model of doing business. Some have managed this more rapidly, and successfully, than others.



Will Administration's Policies Give Economy a Boost?

The U.S. has been muddling along at 2 percent growth since the recession. Without any positive policy action, that’s not likely to change over the next few years, concluded Douglas Holtz-Eakin, an economist and president of the American Action Forum Policy Institute at MSCI’s annual meeting. There are an almost equal number of downside risks to the economy as upside ones, said the former director of the Congressional Budget Office, which leads him to expect similar GDP rates for the next few years, absent some catastrophic global event. “I think the next year looks a lot like what we’ve seen since 2009.”

Economic positives include strong consumer confidence, now joined by a similar sentiment from the business community. The equity markets also have performed well since the start of the year, he said.

A few leading economic indicators are pointing sideways, with both positive and negative factors. Unemployment has continued to decline, but it has not been accompanied by much real wage growth. Without household incomes increasing, “it’s going to be hard to see the sector continuing to help up the economy,” he said.

Inflation also presents a conflicted picture. Services inflation has been a constant since the recession, growing annually at a 2 percent clip. But business inflation has been non-existent, with commodity and other material prices bouncing between slightly negative and slightly positive over the last eight years.

Holtz-Eakin is also concerned about the duration of the recovery. While economic growth periods don’t typically die of old age, they also don’t usually extend beyond the near-decade-long upswing the U.S. economy has seen. Additionally, other world economies are more likely to serve as a drag on domestic growth.

What would move the economy in a positive direction? Holtz-Eakin believes the Trump administration has already taken one significant step. The previous administration enacted regulations costing $860 billion over the course of its two terms. Through executive order, President Trump mandated the removal of two regulations for every new one created. This aggressive move toward deregulation could trigger new private sector growth and push GDP above the 2 percent level. “For the first time, the federal regulatory state is on a budget,” Holtz-Eakin said.

Prospects for further progress in Washington are less clear, given the administration’s failure to truly identify and work diligently toward specific objectives. “If everything is a priority, then nothing is,” the economist added.


September 2017: Numbers Don’t Add Up for Service Centers
More...
 
Pause
September 2017: Lichtenstein: Five Steel Truths that Demand Attention
More...
Fall 2016: Cutting & Sawing Equipment
More...
Summer 2017
More...
 
Pause
Advanced Controls on Braner Slitters
More...
AHVS Precision Leveler Features Flip-Top Design
More...
Formtek’s Tishken Slitter Increases Production Volume
More...
Red Bud System Handles High-Strength Steels
More...
Bradbury Launches Flat Trak CL Monitoring System
More...
Artus Knives Custom Designed
More...
 
Pause
Privacy Statement  |  Terms Of Use
Copyright by Metal Center News



Wednesday, October 18, 2017