Monday | 05 December, 2011 | 9:13 am

Crude optimism

By Gretchen Salois

As countries struggle with looming debt, analysts are cautiously optimistic about the crude steel market

December 2011 - Speculation fuels the financial industry as the global economy continues to mend. Analysts are forecasting recovery of crude steel production in the European Union, and they remain cautiously optimistic. “We’re seeing a trending up year over year for crude steel since the 2008 crisis, but the rebound seems to be somewhat stifled or dampened by what’s going on in the financial market,” says Jim Forbes, global metals leader at PwC LLP.

With crude steel production up around 22 percent in France, Forbes believes after a poor year in 2009, there is an upswing in numbers from month to month. But “it’s still an uphill battle,” he says. “But year over year, 2.5 percent is a fairly low gross rate.” He says the slow recovery is due, in part, to the volatile economic environment in Europe. “You find similar trends across Europe: 27 percent in August, 10 percent in July, it’s improving,” Forbes says.

With steel being a global commodity, Forbes believes as a marketplace improves, the level of imports rises in that marketplace. “The U.S. is a large consumer of steel, and that’s where a lot of imports are being targeted. Growth in other regions takes some pressure off imports to the U.S.,” he adds.

The media directly impacts consumer confidence because it offers immediate reporting on the day’s latest news and how it pertains to the economy. “The amount of information we’re getting has been increasing so fast—negative news elsewhere in the world can have a negative impact on U.S. consumer confidence., causing people to lose confidence,” Forbes says, adding reports indicate EU investor and business confidence isn’t as negative as in 2009, but “that was right before Greece’s debt problems came to fruition,” he adds.

Up ahead
In the short-term, Forbes thinks there will be some positive gains in the next quarter. However, until the overall debt structure is solidified in Europe, “given that headlines affect the capital market and investor sentiment,” Forbes believes there is still some economic groundwork to be laid in the United States and across the globe.

“Until we see the debt crisis resolved on a sustainable and long-term basis, in the short-term, we will see some growth, but it will be slow growth,” Forbes says. “Next year, if the debt crisis throughout Europe is resolved, there will likewise be additional growth.”

Further supporting the notion that one region affects all the rest, Forbes notes as China continues to grow, it also will impact the steel industry. “Chinese orders are not as high, which has an impact on other countries; if you don’t have consumer demand driving the market, you won’t have that robust growth area that gets us back to where we were,” he adds.

With no notable construction projects on the docket, Forbes doesn’t believe construction is slated to post growth on a significant level. “In the EU, construction is about 25 percent of the marketplace,” he continues. “A lot of that drives growth, and we need to see growth in those areas to drive the steel market.”

According to The European Steel Association, Brussels, from January through September 2010, European crude steel production was 5,711,000 metric tons, up from 4,269,000 in 2009, a nearly 34 percent increase. However, this is down from 6,389,000 during the same period in 2008 and 6,047,000 in 2007. Eurofer’s Economic and Steel Market Outlook 2011-2012 report indicates sentiment in the manufacturing industry has been declining since April. The report says in addition to a less-positive assessment of order intakes and production expectations, the latest surveys suggest stocks of finished products in the supply chain have been on the rise since July.

The report also indicates output of capital goods continued to increase “at a healthy rate” as demand was supported by domestic sales. Corporate investment in machinery and equipment in Europe also increased following the 2009 recession. In 2012, Eurofer predicts a 5 percent decrease in third country imports, with demand trends weakening and the Euro staying below $1.40, “keeping imports at a reduced level.” MM

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