The American Institute for International Steel (AIIS) says, in its April newsletter, that they believe that the underlying demand for steel in the USA in the major steel demand sectors such as automotive, energy and, increasingly, construction, continues to be strong. In the case of construction, the market is improving, but uncertainty continues to burden the economy as it enters the second quarter.
The steel market is consistent with the stalled economy. Domestic industry shipments, along with imports, are down in the first two months of 2013. Lead times for domestic mills are short – some buyers are reporting receiving hot rolled sheet in as little as two to three weeks from order. Flat rolled prices have stagnated so far this year, except for some recent reports for plate, which seems to be strengthening on improved ordering. Long products appear to be on a slight improving trend, except for structurals, although it is too soon to know whether the trend will hold and gain momentum. With improved demand in construction and as winter weather finally leaves the East Coast and Midwest, there is some reason for optimism for construction related products.
With lead times for domestic shipments short, there is little reason for service centres and distributors to hold much inventory. However, an optimistic scenario expects demand in those sectors that remain strong begin to show increased momentum, there will be a rush to buy, pushing prices up and lengthening lead times. This optimistic scenario will also create a better environment for import ordering.
The optimistic view however, is not the only view of some economists. There are those who believe that the market is on the precipice of another recession and point to the fact that while unemployment decreased in March to 7.6%, this is overwhelmed by the fact that only 88000 jobs were created in the month and nearly 500000 workers left the job market completely, reducing the labour market participation rate to just over 63% and so creating the small drop in the unemployment rate. This is the lowest participation rate since the late 1970s. In addition, they fear that the paltry growth of just 0.4% that the economy posted in Q4 of 2012 as well as the increased costs associated with ‘Obamacare’ and regulatory over-reach by the federal government will dampen demand and push the US back into recession.
However, AIIS believe that, with the positives noted earlier are reversed, there is simply too much solid economic activity and growth built into the economy to hold to the recession view.