At SteelOrbis' Spring Conference and IREPAS 56th meeting, F.D. Baysal of Seba International Ltd. delivered a presentation about the situation of the US long products market.
Mr. Baysal discussed the following major changes in the economy at large as it concerns the steel industry: A concentration of production - 30 percent of the world's steel production comes from only 10 steel producers; the fact that financial fund managers control US service centers, and that steel trading companies owned by major steel mills sell their own production, versus 3rd party mills' production. SEBA sees these changes in the market as positive.
Economic indicators that concern the US steel market include: GDP growth in 2006 and in Q4 '06 (3.4 percent and 2.2 percent respectively); Construction (down 1 percent in '06); US lightweight vehicle production (down 0.6 percent in '06); US heavy vehicle production (down 1 percent); production capacity of US (100 million tons); imports of steel products (41 million tons in '06, compared to 29 million tons in '05 and 32.5 million tons in '04); estimated world demand for steel (1.18 billion tons) versus estimated world production capacity (1.54 billion tons).
In 2007, the estimated GDP growth is the same as 2006, while light vehicle production is expected to drop. In general, 2007 may not be a booming year for the US steel industry, largely due to the overhang of inventories at the end of 2006. Meanwhile, steel prices are on the rise in the rest of the world compared to sluggish US prices. This is the first time that global steel prices have risen independently of the US market. Thus, it was proven that high prices worldwide don't require participation of the US, a discovery that many find both surprising and reassuring.
For the second half of 2007, Seba has optimistic projections. One reason is that the unchanged interest rate should be good for the construction industry, keeping rebar demand high in turn. Another reason is that energy costs are trending downward, and have been doing so for the past 6 months. Also, the Consumer Confidence Index is at a five-year high (112.5 in February 2007). These factors in combination should result in strong third and fourth quarters of 2007.