May 27, 2015
Trends Point to Higher Steel Prices
With the U.S. economy chugging along at the “new normal” pace of just 2.5 to 3 percent, the steel market finds itself in a challenging “grind it out and up” scenario, but prospects are improving, said Frank A. McGrew IV, managing director and leader of the Raymond James Investment Banking Metals Coverage Team, who was a keynote speaker at the Steel Manufacturers Association annual meeting May 13 in Washington.
Consumers remain cautious as the middle class is being squeezed by low wage growth and lingering memories of the last deep recession. Shifting demographics and concerns over longer life expectancies are adding to careful spending habits and a renewed focus on savings. Similarly, businesses remain reluctant to make long-term investment decisions due to unstable or inconsistent political policies and the likelihood of rising interest rates, McGrew said.
On the plus side, oil prices are strengthening to the point they will soon trigger increased drilling. The EU’s stimulus is showing signs of catching hold, improving demand in Europe. And early moves by China to stimulate its slowing economy may slow its exports, he said.
Prices on most finished steel products have bottomed and should experience modest increases for the remainder of 2015 and throughout 2016, McGrew predicted. He forecasts that the price of commodity hot-rolled black material will improve by $25 to $50 per ton in the second half, regaining the $500 per ton level, with an additional upside of $25 to $50 per ton in 2016. Headwinds including an oversupply of raw materials, heavy imports and modest demand will continue to keep pricing below the $600 per ton level, he added.