The long road ahead
In this past week, there have been further indications that while steel is in recovery mode, the pace of the recovery will be slow.
While overall steel demand will embark on a slow return to health in 2010, spending for one of steel's biggest end-market, construction, will continue to decline until 2011, IHS Global Insight reported this past week. The consultancy firm expects that total construction spending in the US on an annual basis will fall -12.2 percent this year and -5.6 percent in 2010 before growing +7.6 percent in 2011. IHS says that while some segments of the construction industry, such as residential construction, have been displaying "pockets of resurgence", nonresidential construction will continue declining for several more quarters. Commercial construction, in particular, is forecast to post sharp year-on-year declines in 2010, "overwhelming the developing strength in the residential sector and dragging annual total construction growth down into negative territory."
This, of course, is bad news for steel, particularly long products, which are dependent on a vibrant construction market. Still, most analysts say overall global steel demand will rise at least slightly in 2009. Fitch Ratings reported this past week that demand for steel should rebound modestly over the next year to 18 months, as the industry will likely be able to pass along higher raw material prices, but will be limited by excess capacity. Fitch noted that cost reductions across the industry will continue to boost liquidity throughout this slow recovery. One such example of cost reductions made by steelmakers, and also of slow pace of the steel demand recovery, is the recent news regarding some cuts expected by the world's largest steelmaker.
The Wall Street Journal reported this past week that ArcelorMittal next year plans to cut about 10,000 jobs worldwide, with most likely to occur in Europe and the US. The article also said that ArcelorMittal would continue to operate at only 70 percent capacity for the next four years. The company later qualified to the Associated Press that it hasn't decided about production beyond this year (though it plans to stay at 70 percent capacity during the current quarter) and that it will cut an "unspecified" number of jobs. Still, it doesn't appear that the company, or any other major global steelmaker for that matter, is terribly optimistic about the demand prospects for the coming years, particularly from the developed world. On the bright side, the developing world will pick up more of the slack, allowing for at least some recovery, on the whole.