Analysts see steel demand weak until late in the year
No real growth seen until auto, construction perk up
By Tom Stundza -- Purchasing, 6/8/2009 10:20:00 AM
A true recovery in end market demand isn’t expected until late in 2009, forecasts Jefferies & Co. analyst Yvonne Varano. Apparent steel demand dropped 10% in 2008 but her calculations show first quarter purchases dropped 47% from the year-earlier quarter. So, while service centers may begin replenishing stock in the third quarter, she doesn’t believe such an improvement in bookings would be considered a turning point in overall market demand.
Her analysis centers on the automotive and construction sectors. She doesn’t expect to see a meaningful pick up in demand for steel from the automotive industry until many of the current issues surrounding the industry are settled. The industry as a whole has been producing at a rate of about 7.5 million annually, which is down from 13 million in 2008 and 15.5 million in 2007.
“Current auto production rates remain low with General Motors announcing extended summer shutdowns to production and Chrysler shutting down in relation to the bankruptcy proceedings,” she writes. However, Ford may have increased production to 435,000 units in the second quarter (from 349,000 in the first quarter), a 25% increase. Should Ford continue to increase production into the third quarter, it could partially offset the lack of GM production as it reorganizes. GM already had been operating at an extremely low rate of just 1.5 million cars annually, down from 2008 levels of 3.2 million.
Construction is one of the other most significant end markets for steel, Varano writes. “Non-residential construction, which is typically a later cycle market and has held on longer than residential construction, started to show signs of weakening in the latter part of 2008 and has progressively weakened,” she says.
Also, there is the expectation that stimulus money earmarked for infrastructure spending should benefit this end market--though she believes that, given the pace at which funds are likely to be distributed, this is more of a 2010 event.
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