Industry Outlook -- Basic Industries: METALS
While U.S. plants hum, executives grumble. Imports are pouring into an already
With domestic shipments rising nearly 3%, to 100 million tons, U.S. steel mills ran flat out for the fourth year in a row in 1996. This year should be strong, too. So why the glum faces? Low prices. Low-cost producers, both domestic and foreign, are grabbing big pieces of the rich American market for conventional steel, as well as stainless steel and aluminum.
Surging imports and a strengthening dollar spell continued low prices and earnings. "We like to make a few bucks on the stuff we sell," grumbles Paul J. Wilhelm, president of the U.S. Steel Group of USX Corp., the country's leading steel producer. The seven largest steel companies saw operating profits fall from $43 per ton in 1995 to $25 in 1996. And Michael F. Gambardella, steel analyst for J.P. Morgan &. Co., expects them to slip to $23 a ton this year.
"STAGGERING." The crowding is getting worse. This year, 4 million tons of new minimill capacity should come onstream. Leading the charge are Nucor Corp., with its mammoth new mill near Charleston, S.C., and LTV Corp., which expects to start melting scrap steel at its Decatur (Ala.) joint venture with British Steel and Sumitomo Metal Industries in the first quarter. Joining the minis are a host of foreign producers from Brazil to Russia. Imports rose to about 28 million tons in 1996, up 40% from three years earlier. "The monthly numbers are pretty staggering," says American Iron & Steel Institute President Andrew G. Sharkey III. Unless European steel demand picks up sharply, look for more imports in 1997--and for U.S. steelmakers to file trade suits against foreigners.
The likely glut in sheet steel is forcing companies to dredge for markets elsewhere. AK Steel plans to produce only high-priced steel and drop out of the commodity flat-rolled market altogether (box). Bethlehem Steel Corp. is ceding other products to the minis, including structural steels and rails.
With new technology, though, low-cost producers can follow Big Steel just about anywhere. Look for boards of directors, fed up with lackluster numbers, to start pushing for management changes. Top execs at National Steel, Bethlehem, and specialty steelmaker Armco are on the hot seat.
While steel prices rose slightly last year, aluminum and stainless steel took a beating. Stainless suffered from a price collapse in Europe, which produced a flood of cheap imports. Aluminum prices fell 35% in 1996 before mounting a late recovery. If they keep rising in the coming year, as expected, watch for Western aluminum companies to restart shuttered smelters--which could cause prices to slide yet again.
The solution to price wars? Push metals into engineered products and materials, where margins are higher. Aluminum Co. of America, for example, is making aluminum castings for Chrysler Corp.'s Prowler, due this spring. Such projects spell relief from crushing commodity markets--the relief metals companies will probably hanker for in 1997.By Stephen Baker in PittsburghReturn to top
-- Steel demand in the U.S. should remain strong after five years of steady growth
-- A glut of Russian aluminum has been absorbed by the global market
-- Margins on engineered steel are still good
-- With growth slow in their home markets, European steelmakers will continue to unload cheap steel in the United States
-- New minimills will contribute to a glut of sheet-steel capacityReturn to top