Steel has been on the top side of the bell curve for the past two years, the question is can the upswing be maintained throughout 2019?
It has been more than a decade since the steel industry high three successive highs – will the economy, both domestic and global, continue the upward trend?
Although January and February this year have not shown the strength of the same periods in 2017 and 2018, results seem only to be hitting a speed bump as all critical indicators for the strong economy remain solid.
Interest rates, auto sales, housing, commercial construction, agriculture and banking are all generating very positive results, producing the ideal conditions for strong steel demand and pricing for the rest of 2019.
The industry has been making profits, reinvesting in equipment, technology and manufacturing – the domestic steel industry has not been this strong in decades.
Consolidation in the industry, upgrading of technology, production improvements, cost-cutting and quality control has elevated the domestic steel industry to compete globally like never before. Producing a ton of steel is at unprecedented costing and together with improved quality controls, the U.S. is making steel far more competitively than the industry could have imagined a decade ago.
But what is in store for the nine months ahead? That is the critical question – and the answer is hard to find as the domestic and global political atmosphere is dysfunctional and highly uncertain. The U.S. government is an infamously disruptive state and global unrest has created political uncertainty around the world. This has slowed down the industry’s positive thinking, putting progress on hold as businesses await some resolution in key areas.
Tariffs, trade deals and the United States’ general relationship with Mexico, Canada, China and the European Union are all factors being watched closely by industry leaders. They all will be settled within the next six to nine months.
As issuers are resolved, so stability will return to the international market. Steel price fluctuations that saw some softening have now stabilized. Domestic demand has remained somewhat consistent. Only excess buying has drawn back somewhat, creating a softness in the market not based on reality, but rather talk, rumors and uncertainty in our government’s daily disruptions.
The auto industry is headed for another 16- or 17-million car production year, housing is showing very modest growth of 0.08 percent while commercial construction is looking at high expectations for 2019 of 4.7 percent growth. The Federal Reserve does not see inflation as a current problem, likely resulting in no further interest rate increases for the rest of the year. Profits made in 2017 and 2018 have provided the financial fuel for reinvestment into industry throughout North America. The demand for steel remains strong, though supply of steel has felt somewhat downward pressures based on market rumors and unrest within the government.
Barring some unforeseen collapse in the economy, multiple factors should drive the U.S. economy even higher in – the strength of the dollar, strong automobile sales of 16 to 17 million cars (mostly largely SUVs), house building up a few percentage points, interest rates holding level, wage increased expected to maintain growth at 3-4 percent, and new job growth of 3 million.
It is believed that trade wars will settle with Mexico and Canada, opening the door for agricultural products, metals and manufactured products to once again flow back and forth. Recent news with China is demonstrating that some very positive thinking to resolve much-improved trade relations, producing very positive results on both sides.
The slow start to 2019 was not totally anticipated, but growth is expected to pick up as we move into the second quarter. Hindsight suggests the slower start was due to a wait-and-see economic focus as we waited for more progress on the trade wars, political resolve among the parties and calming on the global horizon. The smart money is betting on a smoother rest of the year.
If we thought the rollercoaster ran fast and furious in the years prior to the 2008 crash, there are potential indicators truly coming together which could accelerate dramatically the speed at which the domestic and global steel markets grow over the next couple of years.
We have a president who has taken the American economy to levels we have not seen in decades. We have never seen a president so business-oriented, knowledgeable and focused on creating a historic track record, and has a head start on making that happen. His unconventional tactics have never been seen in our political past, but results have been his game. On Election Day morning in 2016, the polls gave him less than a 1 percent chance to win, and he has been fighting disbelievers ever since.
So, if we look at the past two years on his success in job creation, wages, manufacturing trade agreements, banking, oil and stronger foreign relationships, I am not sure any of us should bet against his odds in the run-up to the 2020 elections.
The business factors most analysts are watching are aligning to soar and the driving force behind the energy is focused on his second term. Based on his first go at it, I think steel and other industries have a pretty good shot at some home runs and even a few holes-in-one. William Feniger is president of Universal Metals, and subsidiaries American Posts and Ohio Kentucky Steel. Universal Metals was founded in 2001 and is a distributor of flat-rolled carbon steel. He has been in the steel industry for 50 years and is still active in the business.