Steel Industry Looks for a Piece of the Stimulus-Plan Pie

January 7, 2009

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After a roller-coaster 2008 of record highs to devastating lows, domestic steelmakers are now turning to government for orders that, until the September collapse, had come from manufacturers and builders.

The ailing United States steel industry is pressing President-elect Barack Obama for a public works plan that could be worth up upwards of $800 billion over two years to boost flagging demand for U.S.-made steel, the New York Times reported on Friday.

The industry is one of many others in the nation looking for a piece of the stimulus-plan pie.

"We are sharing with the president-elect's transition team our thoughts in terms of the industry's policy priorities," the New York Times quoted American Iron and Steel Institute spokeswoman Nancy Gravatt as having said.

Obama, who is to be sworn in as president later this month, has not revealed details of his soon-to-be-announced stimulus plan, which has yet to be drafted as a bill. However, the plan is expected to total nearly $800 billion in new spending and tax cuts over the next two years to spur the weakest economy in more than seven decades. Aides have indicated most of the package will probably go into infrastructure spending rather than tax breaks. (See yesterday's National Infrastructure Takes Center Stage.)

The steel industry — which supports building roads, bridges, mass transit systems, electric power grids, schools, hospitals and water treatment plants, all of which would require large volumes of steel — is one of many others lobbying in support of a wide-ranging federal program to support public works projects.

Nucor Chief Executive Officer Daniel DiMicco last week said he will use his position as a member of the U.S. Department of Commerce's manufacturing council to push for the use of domestically produced steel. DiMicco said that the domestic steel industry wants the new administration to address "the worst economic slowdown in our lifetime through a recovery program that has in every provision a 'buy America' clause."

"Buy-America" provisions that already apply to government infrastructure projects are unevenly enforced, Bloomberg News quoted DiMicco as having said.

"The industry itself is turning to government for orders that, until the September collapse, had come from manufacturers and builders," the New York Times said.

In the second half of last year, U.S. steel output declined after a notably strong first half. Since September 2008, capacity utilization rates have declined to about 50 percent at some plants while widespread layoffs have been announced at a number of companies. Before tumbling with the rest of the economy last year, U.S. steel prices had reached all-time highs that resulted in some significant corporate revenues.

Weak demand for steel is the most notable reason for the abrupt slowdown. Large-volume steel consumers such as automakers, contractors, appliance manufacturers and equipment makers are hit be weak consumer demand, forcing them to cut orders for raw materials.

The Metals Service Center Institute (MSCI) reported another month of declining shipment volumes in the U.S. during November, saying that "turmoil unleashed by the housing and financial crisis" for depressing North American economic activity.

Steel service centers were especially hard hit. U.S. service centers' steel shipments declined 32.7 percent from the November 2007 shipment total, to about 2.71 million tons. For the first 11 months of 2008, U.S. service centers shipped 44.4 million tons of steel products. The MSCI noted that the last time year-over-year steel shipments fell so markedly was during the 1980-82 recession.

As November closed, U.S. service centers had steel inventories totaling 9.1 million tons, down 11 percent from November 2007. "At current shipping rates, inventories equaled a 3.4-month supply of steel, up sharply from October's [estimate of a 2.8-month supply] because shipping volumes have dropped so low," the MSCI reported.

Imports, which account for about 30 percent of all steel sales in the U.S., are also hurting as customers disappear, the New York Times noted. Total imports of steel products in November fell by 28.1 percent versus the October import total, and finished steel imports fell by 17.3 percent, according to preliminary data from the U.S. Dept. of Commerce's Census Bureau. For the first 11 months of 2008, total imports of steel amounted to 29,694,045 tons, a decline of 4.9 percent versus January-November 2007.

On an annualized basis, 2008's total and finished steel imports were down 2 percent and 1 percent, respectively, over the 2007 import rate. The rate of imports projects to a total of 32.4 million tons of steel for 2008.

In recent months, the combined drop-off in steel demand and orders forced many steel mills to reduce production to keep prices from plummeting even more, resulting in even the nation's largest steel producer halting production at facilities around the country.

Although the majority of mills closed over the last few months remain shuttered and many around the world are operating below 50 percent of their capacity, the Wall Street Journal this week reports that steelmakers not only in the U.S. and other countries are "attempting limited price increases and reopening a handful of mills that were closed because of weak demand."

"It isn't clear whether the price increases will stick," but steelmakers signaled "cautious optimism that there is enough demand to support price increases in some parts of the world."

Earlier/Related

Steel Production Slowdowns Idle U.S. Plants

Abrupt Slowdown in Steel Industry

In Face of Weaker Demand, Steelmakers Consider Production Cuts

The Steel Situation: Production, Prices and Shipments

Grim Outlook for Steel Buyers

Resources

Steel Industry, in Slump, Looks to Federal Stimulus by Louis Uchitelle The New York Times, Jan. 1, 2009

With Billions at Stake, Business Lobbyists Vie for a Piece by Elizabeth Williamson and Brody Mullins The Wall Street Journal, Jan. 6, 2009

Obama Warns of Prospect for Trillion-Dollar Deficits by Jeff Zeleny and Edmund L. Andrews The New York Times, Jan. 6, 2009

Nucor's DiMicco Urges Obama to Use Steel Made in U.S. by Rob Delaney Bloomberg News, Jan. 2, 2009

November 2008 Crude Steel Production The World Steel Association, Dec. 18, 2008

November 2008 Metals Activity Report The Metals Service Center Institute, Dec. 17, 2008

Preliminary: U.S. Imports for Consumption of Steel Products (November 2008) U.S. Census Bureau, Dec. 23, 2008

Steelmakers Move Cautiously To Raise Prices, Reopen Mills by Robert Guy Matthews The Wall Street Journal, Jan. 7, 2008

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