U.S. Steel Industry Problems Expected to Continue

The U.S. steel industry is likely to remain under heavy pressure, resulting in "terrible" profits in the first half of next year, according to a leading industry commentator.

Peter Marcus, managing partner of World Steel Dynamics, a New Jersey-based consultancy, believes the economic downturn will keep steel consumption in the United States depressed next year, leading to "excruciating" financial pressures on many steelmakers.

The main cause of the problems has been steadily weakening prices that are at about 20-year lows. Hot-rolled band - a widely used type of steel - is now selling in some parts of the U.S. at about $220 a ton, from $320 a ton in the spring of 2000.

Marcus believes that the industry will be helped by the removal from the market of capacity from LTV and other steelmakers which have recently stopped production.

According to WSD's calculations, steel consumption in the United States next year will pick up only marginally to 125 million tons, from this year's expected 122.8 million tons. The expected total compares unfavorably to last year’s figure of 134 million tons.

While the U.S. industry believes that low-cost imports are a root cause of the slide in prices, imports as a proportion of consumption this year are likely to be the lowest since 1995.

Imports will be 28 million tons this year, representing 23 percent of total demand, according to WSD's forecasts. Last year, imports came to 38 million tons, 28 percent of consumption.

Even with the fall in imports, the fact that demand is unlikely to pick up will continue to squeeze U.S. steelmakers' profits, even though a pick-up in prices is possible towards the end of the year, according to Marcus.

In the third quarter of this year, large integrated steelmakers in the U.S. on average made an underlying loss - worked out after subtracting interest, tax, amortization and depreciation - of $25.5 a ton, says the consultancy.

On an equivalent basis, steelmakers in Europe made a profit of $34 a ton, while the figures for companies in South America, Japan and Asian countries (excluding Japan) were $82.7, $39.9 and $64.5 respectively. Financial Times