Anyone waiting for a full recovery of the domestic steel industry in 2012 may have to wait one more year.
Ms Monica Bonar, North American mining and metals analyst for Fitch Ratings, said that it should. Although the market is expected to show its third consecutive year of improvement by the end of 2012, she said economic weakness in Europe and less than stellar growth in the US economy will prevent a sharp rise in improvement for steel.
She added that "This recession, the steel industry just recovered so slowly, and steel production is still not where it was before the boom years in 2007 and early 2008."
In its report released late last month, Fitch provided a stable rating on US steel producers in its 2012 outlook but maintained negative outlooks on ArcelorMittal SA and United States Steel Corporation. The ratings on the long term debt default probability for ArcelorMittal and US Steel are BBB and BB, respectively. The US Steel rating is considered below investment grade.
Ms Bonar said that the steel industry should operate between 75% and 80% of its available production capacity in 2012. She said this could be problematic for steel producers since they have high fixed costs and need market demand to increase operating rates and profit levels. Also complicating the situation is the new production capacity added to the market last year.
She added that "There's still excess capacity in the US, so US steel producers can't really get the prices they need to really have good margins."
Higher domestic prices for products such as hot rolled coil could invite more imports into the market, which could lower mills' ability to raise prices. Producers in the best positions are expected to be those that are able to capture premiums for higher priced value added products and with substantial flexibility in their operating scale.
Growth is expected to continue in the energy, agriculture, mining and automotive sectors. Fitch predicts that full recovery in construction, which consumes 35% of steel production directly and 15% indirectly, is about two years away.
Since the recession, Ms Bonar said US Steel was among the companies to make smart investments in things such as more efficient coke production methods while construction costs are at lower levels. She added that "It really makes sense to do these projects. If you wait, the costs are going to go up."
(Sourced from www.nwitimes.com)
