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August 2011 Business Topics
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 Service Center View of Steel’s Recovery

By William D. Feniger, president of Universal Metals, LLC, a steel distributor in Toledo, Ohio.

I’ve been involved in the steel business for over 40 years. I’ve seen good years and bad. I shared in the difficult experience of the 1990s when our entire industry refitted itself to meet the realities of a global market. I witnessed the industry rebound with the new century just to see it put on its knees again in 2009. So, pardon my steely-eyed cautiousness as 2011 shows signs of improvement for North American steel mills and service centers. Yet, there is reason for optimism—if we stay the course.

The fact is, we see familiar cycles returning to the industry. Demand has remained steady throughout the first half of this year, with mill output maintaining its delicate balance of supply. Despite some softening of pricing in the second quarter, profitability has remained at positive levels even with the expected summer slowdown.

If the mills maintain balanced production, there will be no need to dump inventories, warehoused product will retain value and lenders may be encouraged to invest.

Manufacturers, like the automobile industry, likewise may be encouraged to produce more, and consumers will continue to stimulate the economy through slow but positive growth in the second half.

National manufacturing numbers have been improving for the past six months and projections remain positive for the balance of the year. In addition, North American steel might just get a lift from the rebuilding of areas ravaged by tornadoes and flooding. Buildings, homes, roads and bridges will require rebuilding. Thousands of units of automobiles, agricultural equipment, tractors, trailers, barns, combines and fencing will need to be replaced, further boosting the steel industry. The only question is timing, though some spending will surely begin during the second half of this year. Our steel mills have room to increase production levels, and the anticipated demand should easily absorb any increased volumes.

Although the economy is not calling for any significant uptick in housing starts or commercial construction until later in 2012 or beyond, we can hopefully look to Washington for some stimulus dollars to rebuild some of the more than 900 bridges rated by government engineers for replacement. With the 2012 elections quickly approaching, we have to assume that efforts to re-elect the current administration will bring on more programs to create jobs in America.

The pieces of steel’s economic puzzle seem to be falling into place, slowly but surely. North America reinvented its steel industry and is ready. The economy in America and globally appears to be poised for positive growth. The demand that will drive steel forward through 2015 is clearly on the horizon. However, the scar tissue from the wounds suffered over the past two years has not yet disappeared. The conservative, protective reactions of industry have not given way to the roll-the-dice, go-for-the-gold atmosphere we’ve seen in the past. History says we may well see a return to those risk-taking, adventurous attitudes of industry, but I wouldn’t bet on it in the near future. Clearly, this is a time for managed growth and conservative expansion. 

As strong as America has been and will be, the wild cards of the world have yet to be played. Japan’s rebuild, Greece’s survival, China’s monetary gamesmanship, steel mill capacities, exports/imports, raw material prices and availability, and even Washington’s yet-to-be-clarified recovery efforts will all affect the course of the steel industry. Eyes wide open will be our only chance to manage our way through the business maze.

The steel industry is strong and remains a good investment in the future of America. Its survivors have learned hard lessons and are well-poised for the long period of recovery that remains. There is a light ahead. Perhaps by the end of this year it will be bright enough to show us where we are going. n

  
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