Capital spending in the power generation industry came to an abrupt halt in the second quarter, causing a dramatic falloff in specialty steel purchasing by both machinery builders and the downstream firms that make their parts.

Due to reporting lags, the most current statistical data on consumption from the Specialty Steel Industry of North America covers the first quarter and shows that demand was down 2% from the same period of 2001, where full-year demand ended up falling 18% from 2000.

"While we projected weakening power generation sales going into the April-June quarter, the decline was more substantial than we expected," says Mac McAninch, president of Universal Stainless & Alloy Products in Bridgeville, Pa. He says the abrupt drop in specialty steel demand came from both makers of power generation equipment who put existing orders on hold and their suppliers of forgings and other parts.

Also a factor in the demand decline for specialty steel goods was a slowdown in demand from aerospace customers for specialty rerolled stock. Looking ahead, McAninch sees "a negative outlook for power generation demand, at least for the balance of the year, and a slow pace of recovery in aerospace." Unless there is a pick up in aerospace demand, Universal Stainless expects no better than stable sales in second half 2002 compared to the first half.