Risks & rewards

By Lauren Duensing

May 2013 - Companies that make confident and aggressive moves in a down market often win market share and invest at a low cost because they’re one step ahead of their competitors. However, it requires a steely resolve to forge ahead.

The outlook for the global economy is murky. I’ve written something to that extent many times in various forecast articles and economic reports. It’s been the state of the market for several years, and the persistent uncertainty makes it extremely difficult for businesses to plan for the future, take risks and invest. On a daily basis, CEOs, analysts, journalists and market watchers are presented with a vast amount of data. Sometimes the conclusions from that data are cut and dried, and sometimes they fit solidly into a gray area. 

On the positive end of the spectrum, according to the World Steel Association’s Short Range Outlook, global apparent steel use will increase by 2.9 percent to 1,454 million metric tons in 2013. However, there still are problems in the European economy that are pulling this number downward. 

Hans Jürgen Kerkhoff, chairman of the Worldsteel Economics Committee, pointed out in a statement, “2012 was a challenging year for the steel industry with apparent steel use increasing at the slowest rate since 2009 when demand declined by 6.5 percent. This was mainly due to the Eurozone crisis, which persisted throughout 2012 and whose impact was felt further afield. On top of this, corrective macroeconomic measures in major emerging economies also contributed to a concerted slowdown globally.” 

Kerkhoff said, however, many of these key risks have stabilized in the first part of 2013, and “we now expect a recovery in global steel demand to kick in by the second half, led by the emerging economies. Yet, the situation in the financial markets remains fragile and the Eurozone crisis is far from being solved as the recent events in Cyprus have again shown.”

How are companies navigating this global minefield? Many are focusing on their own investment strategies. Chicago-based Prime Advantage, a buying consortium for small and midsized manufacturers, found in its fifth annual Group CFO Survey that company CFOs are focusing on growth in 2013, with 98 percent of them believing U.S. manufacturing will expand or stay the same this year. 

Seventy-two percent of respondents are optimistic about their financial prospects, and a record number of companies are planning capital expenditures in computer hardware and software. Forty-nine percent are planning to increase the number of employees at their companies, and 46 percent have engaged with local educational providers to train workers—a number that has increased dramatically from just 19 percent in 2012. 

In this month’s cover story, “A revamped, refined business plan,” Sean Hoover, U.S. metals industry leader, PwC, commented, “The most prevalent thing we’ve seen happen over the past year [among metals companies] is what I would describe as a look inward. Our metals clients are investing in and trying to improve operational effectiveness. With the softness in pricing for both aluminum and steel, they’re trying to focus on what they can control, which is the cost side of the equation, and trying to best position themselves for when the markets finally do end up rebounding.” MM

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Although low pricing on metal products across the globe once inspired companies to stock up, there’s little appetite for risk peering into 2016.


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