At the National Association of Steel Pipe Distributors' (NASPD) Fall Conference at the Mills House Hotel in Charleston, South Carolina on September 15-17, Rick Blume, General Manager, Commercial Steelmaking Group for Nucor focused on the current state of the economy during his presentation: "An Industry Update--Looking into the Future." Blume told attendees that GDP growth in 2011 is expected to only be about 1.5 percent and a slightly higher 1.8 percent in 2012, and from the steel industry perspective "we would like to see GDP growth at about 2.3-2.5 percent annually." The slow growth is of concern, as usually after a recession, we see major GDP growth right after, "but, we're not seeing that."
"We're having a jobless recovery" said Blume, who noted that Dan DiMicco, CEO of Nucor, met with US President Obama and discussed with him the fact "that we have to create jobs." The US' unemployment rate is at about 9 percent currently, according to the US Department of Labor, said Blume, but that's not the full story. A lot of people have just stopped looking for jobs because they become discouraged; "In our view real unemployment is about 16 percent," Blume said, and too many people have to settle for part time work.
A major part of the job loss has been in the manufacturing arena, and Blume explained that since 1998, 6 million manufacturing jobs have been lost. "The last time we had this few manufacturing jobs was in May 1941," he added. The US needs about 25 million jobs to keep up with population growth, according to Blume--we need 100,000-200,000 jobs added per month to keep up, and "we're not keeping up."
Additionally, the US needs to address the major issue of crumbling infrastructure, and needs $2.2 million over the next five years to repair current structural problems according to the American Society of Civil Engineers , said Blume.
Blume also addressed the issue of capacity utilization in the US, explaining that steelmakers have to "keep a certain utilization rate on those mills" because of the costs that go into building and running the furnaces--the costs of scrap, iron ore, met coal and slabs have jumped exponentially in just the last ten years. He also added that currently, Nucor's flat-rolled and plate mills run at capacity levels in the low 80s while longs mill capacity rates are in the low 60s, as the longs market hasn't rebounded as strongly because of the construction market.
In the end-use markets, Blume said that the US is currently producing 600,000 new homes per year, but that rate should be closer to 1 million per year based on the growth of the population. We are severely "under building" he said, and "we will continue to see a weak construction market until 2013-2014."
The automotive market is the one really bright spot in the steel at the moment, particularly for the sheet and SBQ market, but at 13.5 million automotive unit sales, "we're barely above the scrap rate," Blume said--we are "scrapping almost that many" cars, he explained, which means that the "size of the automobile fleet is not growing." Additionally, while the average vehicle age used to be under 10 years (closer to eight) it is closer to 13 now, as people are holding on to their vehicles much longer than they had previously.
Blume concluded his presentation by telling attendees that in the long term, Nucor is bullish on the steel business, and the key steel demand drivers are still intact: population growth and growth in emerging economies. In the shorter term, while there is a lot of demand for steel in the energy, mining and heavy equipment sectors, he expects yet another challenging year ahead.