Although 2009 was a challenging year for the metals industry, business activity is picking up for key metals, including steel and aluminum, raising hopes for a stronger economic recovery in the sector. As the growth rate accelerates through the early part of 2010, with shipments and output for metal products improving, the upward trend may signal a longer-term expansion with the possibility for additional demand growth in the coming months.

According to a January report from the United States Geological Survey (USGS), the primary metals leading index, which measures economic activity, climbed to 139.7 in December, a 1.5 percent increase over the 137.7-point reading in January.

The index's six-month smoothed growth rate, which reflects near-term annual expansion, rose to 17.9 percent in December from 16.2 percent the previous month, indicating an accelerating pace of growth in metals business activity that is likely to continue for the short-term future.

"The primary metals leading index growth rate is indicating a continuation of the recovery in metals industry activity. The economic recovery in the United States has strengthened and metals demand has increased. Although China has tightened credit, global economic conditions appear strong enough to support additional demand for U.S. metals," the report explains.

The steel leading index rose 1 percent in November (the latest month for which data is available), raising its six-month growth rate to 5.9 percent from 4.1 percent in October, the USGS report notes. The copper leading index also climbed 0.3 percent in November, bringing its six-month growth rate to 10.7 percent from 10.3 percent in October.

Shipment levels are an also important indicator of economic health in the metals industry, and they have been gradually rising in recent months, indicating increasing demand for certain metal products.

According to the latest monthly shipments report from the Metals Service Center Institute, released in February, steel shipments from U.S. metal services centers grew to 2.58 million tons in January, up from 2.24 million tons in December, but still 0.9 percent below prior-year levels. Steel inventories at the end of January came to 6.26 million tons, roughly a 2.4-month supply and 26.2 percent lower than in January 2009.

Aluminum shipments also rose, with 96,600 tons shipped from U.S. metal services centers in January, up from 79,100 tons in December and a 2.9 percent increase over January 2009. Aluminum inventories fell to 254,400 tons in January from 279,000 tons in December, leaving a 2.7-month supply.

Despite signs of improvement, however, some segments of the metals market have not fared as well and are beginning the first quarter of 2010 under challenging circumstances.

"Stuck in what one analyst calls 'a lackluster demand environment,' stainless and specialty steel use dropped 38 percent to 1.1 million net tons last year from 1.77 million in 2008 — and 48 percent below the 2.11 million in 2000. In this environment, several stainless steel fabricating firms and distribution centers have been closed," Purchasing.com reports.

"Despite weak industrial and construction activity, which has created a poor stainless steel market environment, domestic mills continued to push for higher prices with limited success last quarter since there was no surge in stainless scrap and alloying metal costs," Purchasing.com adds. "Some market mavens believe stainless steel transaction prices likely will undergo a decline as 2010 moves along."

The recovery has been slower in the European steel sector, although the modest gains projected for this year are expected to accelerate in the long-term. According to a February report from the European Confederation of Iron and Steel Industries (EUROFER), output in steel-dependent sectors will increase by 0.6 percent in 2010, before growth accelerates to 3.5 percent to 4 percent. Although orders and deliveries declined through 2009, consumption is expected to rise 12.5 percent in 2010.

In terms of output, global production for the 66 top steel-producing countries reached 109 million metric tons (mmt) in January, a year-over-year increase of 25.5 percent, according to a February monthly output report from the World Steel Association (worldsteel). Although China continues to dominate the market, producing 48.7 mmt of steel in January, U.S. steel output rose by 48.8 percent year-over-year in January, reaching 6.1 mmt.

As production continues to rise and the metals industry further recovers from the declines of 2009, a boost in demand for metals products would set the conditions for a stronger economic climate to emerge for the sector and lead it into renewed growth through 2010.

Resources

Metal Industry Indicators
U.S. Geological Survey, January 2010

Canadian Steel Shipments Rise Briskly
Metals Service Center Institute, Feb. 16, 2010

Steel, Aluminum Inventories Rise in U.S., Canada
Metals Service Center Institute, Jan. 19, 2010

Stainless Steel Buyers' Market Continues
by Tom Stundza
Purchasing.com, Feb. 11, 2010

EU Steel Market: First Green Shoots of Recovery
EUROFER, Feb. 4, 2010

January 2010 Crude Steel Production
World Steel Association (worldsteel), Feb. 22, 2010