Changes Coming in 2010?

Posted by Peers

October 29, 2009

It has been an interesting year, just as was 2008. Both years had changes in momentum.

In 2008, there were record steel shipments and prices escalating to the highest point in history, for about 9 1/2 months. This was followed by a lack of business and a steady decline in pricing into the new year.

The first quarter of 2009 saw prices continue to fall until a bottom was found sometime in the second quarter. A great deal of capacity in steelmaking was closed, at least temporarily, during the first half of 2009.

Then we started to see some rebound in pricing as customers slowly began to replace their inventory. Scrap prices rose, price increases were announced and although business activity levels were still very low, progress was being made to regain some lost ground.

Now we are in the 4th quarter. The “cash for clunkers” program is over and the little momentum this brought to the flat rolled market is finished. Flat rolled prices and lead times are again slipping. Scrap prices have fallen about $30 in October and will likely drop in November.

We have reached the historically slow November/December period filled with vacations, holidays and the onset of winter. Road construction is over where ever the snow falls, and it has already been falling in much of the Northern regions.

So what indicators do we have for the coming year?

On the bullish side, we see iron ore producers making record shipments in the 4th quarter to European steelmakers who are reopening capacity. Asian producers in Japan, Korea and China expect 2010 to be similar in demand as 2008, which would be fantastic.

On the bearish side we do not see a recovery of either residential or commercial construction in the USA in the near term and there could be additional repercussions from the mortgage crisis as more home buyers have now been given loans from the FHA which are zero down payment loans, and sometimes even 102% loan to value! Since the private sector can no longer give those risky loans, our government has now taken these over. This bears watching!

But if our dollar remains weak, there will be increasing exports of many American made items, steel among them.

The real key to our recovery is a decrease in unemployment, creation of new jobs, so that consumers can confidently return to the market. Can car sales rebound when buyers are unsure of their job status? Difficult at best.

My gut feeling says next year will be better than 2009, but will be far from the records set in 2008 in the steel business, at least in the USA. There could be some wild swings too, just as in the past two years.

Plan for the worst but expect the best. That seems to be the plan of many businesses now and until they feel confident about the future, adding a lot of jobs and increasing overhead will come slowly.

Steel Thoughts