Smart Sourcing Summit: No growth surge for steel
Demand pick-up will be delayed until 2011
Tom Stundza -- Purchasing, 10/15/2009 4:18:41 PM
U.S. steel demand will remain weak in 2010 and beyond, says steel industry consultant Tony Taccone of First River Consulting in Pittsburgh, because studies have shown that steel usage doesn't strengthen until economic growth is higher than 2.5%, which probably won't happen until 2011.
Taccone tells Purchasing's Smart Sourcing Summit in Chicago that U.S. steel demand will end year at around 70 million tons, as compared with 110 million in 2008, and could be no higher than 80 million next year. The historical 15-year (1994-2008) annual average steel demand was 121.5 million tons but Taccone says that "we may never get back to 120 million tons of annual demand again until sometime after 2014."
With domestic manufacturing expected to become somewhat less steel intensive in coming years, he says that steel intensity measurement looks to be dropping to 70,000 tons per billion dollars of gross domestic product in 2014 from 76,000 tons in 2008. But that doesn't mean there will be less tonnage of steel consumed-rising from 110 million tons in 2008 to 119 million tons in 2014.
That also means that "increased price volatility is here to stay." The 2008-2010 price range for hot-rolled sheet, the benchmark grade, has increased to $450-$850/ton, up from $400-$650 in the previous five years, and it may stay at that higher range for some months to come.
Taccone cites several reasons: First, the future annual average scrap price range will range from $150 to $300 per gross ton; second, iron ore will stay in the $60-$90 ton range of post-2005 than the historical range of $20 to $40, and, third, another wave of capacity restructuring is possible. Already, the top five steel companies control 68% of U.S. raw steelmaking versus 42% in 2000.
Year-to-date production through October 10 was at a capability utilization rate of 47.9%. That is a 46.2% decrease from the tons produced during the same period last year, when the capability utilization rate was 88%. Taccone suggests that the steel industry might need to close another 20 million tons of annual capacity to achieve a cost-effective 85% capacity-utilization level.
He adds that the long-term steel-demand growth outlook is strong worldwide but more so outside the U.S. And that just may explain why domestic steel companies are getting more aggressive about seeking export markets.
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