"Prices dropping almost daily. Customers not buying. Sellers desperate. Inventories low - Demand even lower." Unless you've been living under a rock for the past few months, it should not come as a surprise to you that these comments are about the steel market. In fact, they were made by one of the US' industry's veteran traders, John Foster, COO of Coutinho & Ferrostaal, at the SteelOrbis Fall '08 Conference & 59th IREPAS meeting in Hamburg.
However, despite the very bearish market conditions, there are actually a lot of bright spots for the US steel industry, according to Mr. Foster, whose presentation focused on the outlook for the US market.
Although there is a pervasive fear that the current US economic crisis will turn into another Great Depression, there are some very significant differences between the current debacle and the one of the 1930s. Foster presented a comparison of the conditions during the Great Depression and the current market crisis.
Some noteworthy contracts between the two crises that Foster shared are as follows: Unemployment: The unemployment rate reached over 25 percent by 1933. It currently hovers near six percent. Banking: Roughly 9,000 banks failed in the 1930s. Since 2000, 38 banks have failed. Home ownership: In 1940, 44 percent of Americans owned the home they live in. In 2008, 68.1 percent own their homes. Stock market: The Dow Jones Industrial Average fell 89 percent from 1929 to 1932. From its high in 2007, the Dow fell nearly 40 percent by last week. Personal investing: During the depression, about 10 percent of American households owned stock. Now, about half of American households hold stock.
There are many examples of the US "bouncing back" from crises that have occurred throughout the years, like the Depression as well as the stagflation and oil crisis of the 70s, or the bursting of the dot com bubble in 2000, Foster remarked.
The US market also has a lot of competitive advantages over other markets, Foster said. It has the distinctions of having the #1 market size in the world; is #3 in time it takes to start a business; #1 in venture capital availability; #1 in termination costs; #2 in personal computer ownership; #1 in research collaboration; and #2 in quality of scientific research institutions.
The market did "catch the flu" this summer, with very sharp price correction taking place worldwide since July. Construction and US light vehicle production have also taken major hits. However, imports of wire rod and rebar are at low levels compared to recent years, Foster pointed out. Imports of wire and wire products, after peaking in 2006, dropped to 2004 levels in 2007 and are projected to drop further in 2008.
Foster also commented that the new US administration, regardless of which candidate wins, will be viewed as a positive change compared to the unpopular administration of the last 8 years. The low steel inventories and increased consolidation in the industry are additional positives for the steel market. Foster concluded by saying that he hopes to see recovery by next the next SteelOrbis & IREPAS conference, which will take place in the spring of 2009.