Speakers at the AWPA Wire Rod Supply Chain Conference reflected an overall sentiment of optimism for 2011, while acknowledging potential setbacks in the transition from economic recovery to growth.
Monday's keynote speaker at the 2011 American Wire Producers Association (AWPA) Wire Rod Supply Chain Conference in Atlanta, Georgia, Joseph Alvarado, Executive VP and COO of Commercial Metals Company, discussed a contentious topic-federal stimulus spending. While attendee opinions on the matter ranged from gratitude to disdain, Alvarado pointed out that although stimulus funds didn't result in a major boost in the US steel industry (as many expected, for some reason), they at least "shored up" construction, and prevented the key end-use sector from tumbling even further into the economic abyss. Alvarado hesitated to offer a construction outlook for the rest of the year, explaining that "the only way to forecast accurately is forecast often." However, uncertainty has not prevented his company from investing and expanding, and he advised attendees to similarly "be poised for sustainable, profitable growth."
The remainder of Monday's presentations were also comprised of a mix of uncertainty and optimism. Adam Parr, Director of Policy and Communications for the Steel Manufacturers Association (SMA) pointed out the major issues facing the US steel industry, including green energy funding, sustained federal transportation/infrastructure spending, labor/union legislation, and congressional turnover, which can either be a positive (increased receptiveness to manufacturing) or a negative (loss of long-term steel supporters) to the industry. Additionally, as with last year, a hot topic was China, and the ways in which the industry wants the US government to respond to their alleged unfair trade practices. To emphasize this point, Parr said "US steel companies can compete with producers anywhere in the world, but they shouldn't be expected to compete with foreign governments," alluding to the subsidies the Chinese government affords its state-run steel companies.
Attendees were left with uncertainty as to how the US government plans to deal with such critical issues, but one presenter was not averse to forecasting other economic issues. Clare Zempel, CFA and Principal of Zempel Strategic, introduced a new outlook system he dubbed "Zempel Zones." By charting economic indicators such as interest rates, yield spreads, oil price fluctuations, commodity prices and unemployment rates, and contrasting them with historical economic recessions, Zempel claimed he was able to predict economic cycles, including alerts or "canaries in the coal mine" that precede recessions. According to the Zempel Zones, the US is currently in an expanding state, and if another economic downturn is on the horizon, it will not take place for at least another three years.
The highlight of Tuesday's program was the Wire Rod Supply Chain Outlook Panel, but before delving into specifics with leaders of the wire rod sector, attendees were treated to a detailed presentation on construction from Kenneth Simonson, Chief Economist of the Associated General Contractors of America. Through historical charts and graphs, Simonson showed that in general, the devastating construction drop-off has leveled off. A deeper look into the statistics showed that the bulk of the recession-related drop-off could be blamed on residential construction, while public and private non-residential construction were not affected as severely. Simonson predicted that overall construction permits and starts have already hit bottom, and expects slow, but steady growth for 2011, punctuated with slight bumps and dips-good news for a majority of the attendees.
Simonson's presentation was a fitting prelude to the aforementioned panel, which featured Philippe Armengaud, Chief Purchasing Officer of Bekaert; Richard Webb, VP of Industrial Sales at Keystone Steel & Wire; and Axel Bartschat, a Sales Director at Coutinho & Ferrostaal. Armengaud's brief presentation focused on China, which he claimed strives to export high value added, low energy and low investment goods, while steel in general is a high investment, high energy and relatively low value added product. Therefore, Armengaud does not expect that cheap wire rod from China will flood the market unless China stops growing-a very unlikely scenario.
Webb conceded that forecasting is "confusing and fuzzy," pointing out that unpredictable world events are affecting the US steel industry faster and more substantially than ever. Additionally, while this year looks good so far for domestic wire rod (YTD apparent consumption is up 6.9 percent compared to 2010, and YTD mill shipments are up 11.2 percent year-on-year), wire companies need to watch out for "Agents of Influence." According to Webb, the number one agent is scrap, namely Chinese demand for US scrap, which should strengthen as the country increases its EAF production. However, Webb also argued that consumer confidence will play a major role in the US economy this year, trickling into nearly all steel sectors, including wire rod.
Bartschat presented several SteelOrbis historical price charts in his presentation, comparing US wire rod prices and billet prices to import sources such as Turkey. Additionally, he illustrated the shifting trends of sources for imported wire rod and finished wire, with Mexico becoming the top source of imported wire this year.
A question and answer segment concluded the panel presentations, with many attendees worrying about such pressing issues as wire rod capacity utilization, wire rod futures, and how the US can boost wire rod exports while the dollar is still weak. The three presenters took their turns answering the questions, but their responses seemed to only provoke more questioning. For instance, Webb responded to the export question by alleging that US companies do not-for the most part-know how to export. How can US wire producers find new markets and move products around the world? Webb said the answer depends on the company, leaving attendees to ponder whether they have the tools necessary to participate in the export game.