Anton: Steel Price Hikes Unlikely to Stick
Rapid increases in steel prices have outpaced the slowly rebounding economy, and further hikes announced by the mills for the new year are unlikely to stick, said John Anton, manager of the steel service at IHS Global Insights, Lexington, Mass., who addressed the Association of Steel Distributors last month in Chicago.
“I’ll put my stake in the ground—the price increases go in, but they don’t last,” Anton told the crowd of service center executives at the Hotel Sax. “There simply is not enough demand to support it. If the price goes to $680 a short ton, you can bet capacity utilization goes from 70 percent to 90 percent and the market gets glutted.”
Commenting on the demand side of the steel market, Anton predicted manufacturing would continue to grow strongly in 2011. “If you serve manufacturing, you will be getting back to 2007 levels by the end of 2012,” he said.
The weakest of the major steel markets, construction, will see only small improvement next year, however. “Residential construction will rise from 450,000 to 600,000 units—but who cares. It should be 1.7 million. It won’t be before 2015 that residential regains prior levels,” Anton said.
Nonresidential construction is bad and likely to decline even further in 2011. “There is still excess retail and office space. The overbuilding that occurred will take time to work out. Plus it’s still hard for builders to get loans,” he said.
Federal stimulus and infrastructure spending can’t compensate for the lack of private construction, which normally makes up the bulk of the spending. Production of construction machinery is increasing, but at a slow pace, and remains down about 30 percent. “Don’t pin your hopes on a rising construction market. Don’t pin your hopes on selling a lot of equipment to people doing construction,” Anton said.
The auto sector, the biggest consumer of steel sheet, has seen significant improvement, recovering from annual production of less than 7 million vehicles to nearly 12 million in 2010. But 2011 will see only modest further progress. “Remember, we have enough steel capacity to make over 15 million vehicles a year, and we will be making just over 12. That means there is a lot of steel capacity that is not needed.”
Overall, supply and demand are in relatively good balance as the economy picks up steam. Inventories are low at services centers, but adequate to meet customers’ needs. Mills still have idle capacity, and material is easily available from Asia, “so if there are shortages, they won’t last long. I don’t believe allocation is a real threat,” he said.
Steel demand in the United States won’t return to prior peak levels until 2014-15—or perhaps even 2020 under a pessimistic scenario. “Short term, manufacturing is going up, nonresidential construction is going down, and it works out to about a balance. We’ll have flat overall steel demand in 2011, with some pretty strong growth in 2012, once nonresidential construction joins the party with manufacturing,” he concluded.