During the Steel Markets Panel at SteelOrbis and the American Institute for International Steel's (AIIS) Steel West Coast event on January 11, 2012 at the Queen Mary in Long Beach, California, Rick Blume, General Manager--Commercial Steelmaking Group for Nucor; Peter Brebach, President of Iron Angels of Colorado; and Brad Decker, General Manager of Flat Products for the West Region for Coutinho & Ferrostaal discussed what appear to be improving steel market conditions in the US. The panel was moderated by AIIS president Dave Phelps.
After a brief discussion of Nucor, its 26 million mt of steelmaking capacity spread across over 20 steel mills and the fact that Nucor exports approximately 11 percent of its steel products, Rick Blume discussed the current state of the US economy. He said that the problem with the current recession is that the job loss is deeper than the previous recession, and real unemployment levels are actually 16 percent if the number of underemployed and those who have given up looking for a job are counted. Plus, 6 million manufacturing jobs have been lost in the most recent recession. Currently, the US has 12 million manufacturing jobs--the lowest number since 1941. To improve those statistics, we need four things, Blume said, including: energy independence; a pro-manufacturing stance; infrastructure build; and rules-based trade--free and responsible trade.
Peter Brebach also discussed the most recent recession; between 2007 and 2008, his business increased about 80 percent, he said, and from 2008 and 2009 business declined by 80 percent. Iron Angels of Colorado, while dealing every type of carbon steel product, is almost entirely involved in the tubular market--90 percent. There are over 2,000 rigs drilling for energy goods in the US but the rigs are using more pipe than they had in the past, he explained. Drilling is done differently than in previous years because there are "all kinds of new tricks" being employed, such as directional/multi-directional and horizontal drilling. So while oil rigs used to consume about 250 tons of oil country tubular goods (OCTG)--including tubing and casing--each, that number is now approaching about 300 tons per rig. The rigs are becoming faster and more efficient, and require more pipe than in years past.
Brebach continued to discuss the US' energy market during the panel discussion, answering audience questions about the energy pipe market's dynamics. On average, US domestic OCTG consumption is about 50 percent domestically-produced and 50 percent foreign, but right now, about 55-60 percent is domestic. There is an oversupply of OCTG in the market, he said, and it seems "very easy to get an API license." There is also the ongoing issue of Chinese transplant mills in other countries such as the Philippines and Vietnam. And if drilling levels remain at the status quo, "we're going to have massive oversupply."
But Blume added that Nucor is "betting on the long-term viability of natural gas," hence the construction of Nucor's DRI plant in Louisiana.
In answering more audience questions, Brebach also discussed the disparity between oil and natural gas prices. "Either gas is extremely cheap or oil is very expensive," he said. One way or another, however, that gap will eventually shrink.
Brebach then went into more detail about drilling trends, and said that with more complicated types of drilling comes higher grade pipe requirements. And while "a well-welded pipe is just as good as seamless," people generally "feel better about using seamless." There is also a trend toward more premium connections. Another major determining factor in deciding whether to use seamless or welded pipe is price: if there is more than a $200/nt difference between seamless and welded, then welded becomes a much more attractive option.
Brad Decker remarked that Coutinho & Ferrostaal's West Coast offices--located in Long Beach, California and Portland, Oregon--sold over 70,000 mt of foreign and domestic steel in 2011. The "West Coast customer base enjoyed a better December than anyone expected," especially at the service center level.
As for the US domestic market, Decker discussed the recent increase in flat-rolled spot prices, but cited that hot rolled coil (HRC) prices at the end of 2011 were up about $100 per net ton (nt) from the low of 2011, while in the previous year at this time, HRC prices were up about $200/nt from the low of 2010--a reflection of mills announcing more measured increases that allow their customers to pass off the increases before announcing another one.
Looking to the US import market, Decker said that Coutinho does not expect a major jump in import prices in the US following the Chinese New Year, as traditionally happens, but rather a more slow and gradual rate of increase for a few reasons: an increase in local Chinese demand that accompanies the start of spring; the Chinese government somewhat loosening its hold on capital; and at least in Shanghai, stocks are low in the 2-2.5 million mt range.
Dave Phelps asked each of the panelists their company's plan for 2012, as well as their view of 2011 versus 2012. Blume anticipates some slow improvement "but the challenge remains uncertainty." Meanwhile, Brebach said he stopped making forecasts a while ago, but his order book at the beginning of this year is better than in quite few years--a positive sign. Decker also said that futures order books are better than they were a year ago but traders "need to find a way to make our products and services more attractive."
Before the Steel Markets Panel adjourned, panelists discussed the steel industry's biggest weak spot: construction. Decker said there could still be a "sizeable shoe still to drop" regarding houses that have yet to be foreclosed upon. Brebach explained that because the population keeps growing, eventually rents for apartments will increase substantially enough that living in a house will actually become cheaper than living in an apartment. Blume added that the construction market still has a ways to go and housing starts are well below where population growth would say they should be.