It is reported that the US steel industry showed signs of recovery in 2011, but rising raw materials prices and low capacity utilization rates continue to challenge the sector.
According to Fitch Ratings, the industry is not expected to reach a full recovery until 2013. Demand is picking up in the auto, energy and heavy equipment manufacturing segments, while construction has bottomed out.
Capacity utilization rates below 80% combined with high raw materials costs could negatively impact margins in 2012. Flat rolled capacity increases from mill expansions in the United States may take up to 18 months to be absorbed.
Ms Monica Bonar, senior director at Fitch, said that steel producers are being cautious about how much inventory they're stocking, including raw materials, on fears of a downturn.
Mr Larry Kavanagh, president of the Steel Market Development Institute, a business unit of the American Iron and Steel Institute, said that demand from the auto industry should continue to increase in 2012. Sales in NAFTA countries should grow by approximately 1 million units in 2012 to 14 million.
He added that "There's a lot of pent up demand for automobiles because the population has been conserving cash."
Mr Kavanagh said that weakness remains in the residential construction market, which isn't expected to gain strength until mid decade. Growth will likely be at the low end of construction industry projections of 17% to 34% growth in 2012. He added that "Even if it picked up at 17 to 20% in 2012, it's only half of where it was in 2003."
Mr Kavanagh said that the energy sector presents significant growth potential for the steel industry, led by the boom in shale gas exploration and distribution. The industry benefits both from increased demand for pipeline supplies and reduced energy costs. Abundant supplies of natural gas have driven down production costs for US steel producers and increased opportunities for new steelmaking technologies.
The steel industry will be keeping a close watch on several regulatory and economic development issues in 2012. Proposed emissions standards for the 2017-2025 vehicle model years could impact demand for advanced high-strength steel. The industry has increased production of this lighter-weight steel in recent years to help automakers meet regulatory demands for increased fuel efficiency.
Raising the standard to 54 miles per gallon will put increased pressure on the auto industry to find lighter weight materials, including alternatives to steel such as aluminum. The steel industry is pushing the Environmental Protection Agency to consider emissions released throughout the entire lifecycle of a material, including the manufacturing process.
Steel producers say their manufacturing process releases lower amounts of greenhouse-gas emissions than competing industries, including aluminum.
The American Iron and Steel Institute has also called for the passage of a multiyear transportation reauthorization bill that would help create manufacturing jobs, including a large number of steel industry related positions. The bill would help support major infrastructure projects, including bridges and ports.
(Sourced from www.industryweek.com)
