During the speakers' forum at the Port of Tampa 24th Annual Steel Conference on March 1, Patrick McCormick, Managing Partner with World Steel Dynamics, explained that in recent years, scrap demand has been relatively flat--and during periods of flat demand, scrap prices have fallen. In the last year and a half or so, he explained that there has been no big winter price surge as scrap prices fell below the demand line. As for other raw materials, McCormick noted that since the year 2000, China has been responsible for 95 percent of iron ore demand growth.
In the US domestic flat rolled market during the first half of the year, he anticipates that mill increases (announced last week from US Steel, Nucor, etc.) are likely to stick this month, as scrap prices are slated to increase $10-$30/lt. Additionally, the currently narrow spread between US domestic and import finished steel prices gives mills the opportunity to "flex their muscle." Steel imports have slowed down and he told the audience to "watch for mill production cuts and watch mill lead times." During the question and answer portion of the presentation, American Institute for International Steel (AIIS) President David Phelps asked McCormick to expand on his comment about impending production cuts. McCormick said that his comment was "not a guess" and US Steel, ArcelorMittal USA, and possibly others have indicated plans to curb production but when and by how much is unknown. As for the second half of 2013, he said to watch for the flats increases to reverse themselves and cautioned that scrap prices will likely be impacted by declining pig iron prices and a slowing global economy. He later added that imports are likely to be flat, at best, this year, and have the potential to decline.
Next, Guilherme C. Gerdau Johannpeter, President of Gerdau Long Steel North America, spoke on the state of the steel industry in North and South America. He said that in the US, during Q4 2012, customers were extremely reluctant to replenish inventory. On a more positive note, he explained that Gerdau is the largest producer of SBQ products going directly to the automotive market; within automotive, he said that companies have been re-shoring production of parts back to North America. Johannpeter also commented that "sourcing cheap steel" is not a major factor in the success of a company and most of Gerdau's successful customers don't rely on imports, at least not heavily.
In China, rebar production tops 130 million tons--the US market peaked at 10 million tons back in 2005 and has since declined, which is almost making North America irrelevant in the market.
When asked about the construction market, Johannpeter said that in the non-residential sector, while he does not expect a boom, no big drop is anticipated either. "The funding is absolutely there," he said, but "[we] need the political will to put the funding back in infrastructure." As for any impact on Gerdau from the two-year transportation bill, he explained that two years is not enough to see an impact and is not enough time "for our customers to make this happen." A five-year bill is necessary to "get going," and "it is ridiculous that we can't agree to a five-year deal in this country."
C. Lourenco Goncalves, Chairman, President and CEO of Metals USA echoed Johannpeter's frustrations with the US government. He said "Keep in mind: sequestration is real," referencing the current political stalemate in Washington. "We will be better off if politicians get their act together" and realize that "they're Americans--like us--and work for us."
Looking to remainder of 2013, Goncalves said that Metals USA is seeing the housing market definitely coming back to a very stable level and the market for non-residential construction is expected to come back in the second of the year. Last year, non-residential construction was about 3.5 percent of Metals USA's business, while it should be above 10 percent.
When pressed about his personal plans following the acquisition of Metals USA (most likely by Reliance Steel & Aluminum Co.), he only said "I have to stay with the press release and the press release says I'm retiring."
