In its May newsletter, the American Institute for International Steel (AIIS) observes the steel market in the USA has not shown its normal early year rebound this year.

Amidst all the confusion about the direction of the economy, the steel market has remained weak, with consumers benefitting from short lead times at domestic mills, stalled price increase announcements by domestic producers, softening prices in many markets and comments that there is far too much supply in many sectors -- such as the sheet market and the welded OCTG market.

US production dipped early in the year but has recently posted higher totals based on the weekly data from the AISI – noting that these data reflect some element of estimation for those companies who melt steel but do not report weekly production figures. Imports have likewise been posting weak numbers overall month on month.

AIIS continue to believe that uncertainty is a factor, with the delay to mid-May for an improvement is getting too far into 2013 for that to be the sole factor affecting economic activity and the steel market. Something else is clearly at play.
On the macroeconomic side, the labour market has posted small declines in unemployment, with the official percentage of unemployment currently down to 7.5% for the month of April from 7.6% in March. In April 2012, the rate was 8.1% and in compared to 2012, was also down 1.2% according to the Associated Building and Contractors group. Both private and public construction posted declines for both calculations.

The mixed picture for construction has both good and bad news for the economy and the steel industry. The residential construction data reflect the improvement in consumption noted in the GDP data and improved consumer confidence and, as noted by the NAHB, bodes well for employment too going forward. With the largest steel consuming sector, non-residential, remaining weak, both long and flat rolled steel products are negatively affected. This sector has been the weak link for the steel market since the recession started and without a healthy non-residential construction market, a full recovery of the steel market is not possible. The decline in the March data is disappointing, but AIIS remain optimistic that non-residential construction will improve later in 2013.

Good news in the auto sector continues, with the first quarter of 2013 coming in at over a 15 million vehicles as the annual output. Even a small pause in April to 14.9M annual rate does not look too threatening and leaves the first four months’ rate at 15.1M units for 2013 -- the highest rate since 2007. Ford announced $1.61bn in profits for the first quarter 2013 on sales that increased 10.5% over Q1 2012. Of note for steel is the growth in sales of light trucks, pickups and SUVs. Heavy truck sales are also increasing at a healthy rate.

While the OCTG market is currently burdened with high inventory levels, demand appears still to be solid. Significant new investment announcements in oil and gas related pipe and tube products has many in the industry worried about excess capacity though in the future.

There also has been significant attention paid to the impact on the US manufacturing sector of the boom in natural gas supplies and resulting low prices of this energy. Dubbed a ‘game changer’ by many who attribute the low prices to decisions being made to bring back manufacturing to the US from offshore as well as investments in steel related facilities. The low cost of natural gas (~$3.0/t) is driving investment in DRI production whereas 10 years ago all DRI modules in USA ceased production and were largely shipped over-saes. Nucor’s facility in Louisiana is expected to start-up later this year and modules have been announced by Austrian steelmaker, voestalpine and also a facility is under consideration by USS.

It was noted that natural gas 10 years ago was $12 and is now around $3 according to Mario Longhi, US Steel. Even power plants are reported to be switching from oil and coal to natural gas due to the low cost and environmental advantages.