Kidd and Kuel Forecast Flat Year for Steel Industry

Written by John Packard

Buyers and sellers have mixed emotions and opinions regarding the current steel market. Most companies which Steel Market Update has spoken or traded emails with over the past few weeks are telling us their order books are “OK” and in line with what they saw last year at this time. Most companies believe their demand will remain the same or improve as the year progresses, with growth in the low single digits as a percentage. Last year at this time, SMU was hearing the same projections for 2013.

However, as we look at GDP (Gross Domestic Product) and the steel industry – it is well known that the steel industry needs to see GDP of around 2.4 percent before the industry sees any real growth. Real GDP for 2013 came in around 1.9 percent which explains why the industry did not grow. According to Glenn Kidd, Steel Industry Analysts, in his presentation to the FMA Toll Processing Conference earlier today, the total U.S. steel industry consumed 105.3 million tons both in 2012 and 2013.

This year is not looking like there will be much improvement.

Mr. Kidd, along with his partner Chris Kuel, Economic Analyst and Managing Director, Armada Corporate Intelligence, discussed some of the challenges and opportunities for the steel industry in this morning’s economic presentation at the FMA Toll Processing Conference,

First, the United States is emerging as a “legitimate energy producing economy,” the benefits of which may not be fully realized for a number of years – but they are coming. According to comments made by Mr. Kuel, the world is looking at the U.S. as the place to be for future cheap energy. He did not see massive growth this year or next as we continue to build toward energy independence but, “there will be good growth in the next five years.”

One of the interesting challenges is that much of the energy growth is coming from unpopulated places – like North Dakota. Everyone remembers North Dakota as the place with the sign at the border which used to read, “Will the last person to leave North Dakota please turn out the lights.” This will take time to deal with the infrastructure and other items needed as the transition takes place.

Second, Mr. Kuel pointed out the relative stability in the automotive and housing segments of the industry. In both situations, he says, each is doing better than the assumptions made by economists a few years ago.

There is pent up demand for housing units but both speakers pointed out that the Millennial Generation was having a difficult time leaving their parents homes. “We need to become uglier as parents,” Kuel told the FMA group, “When I left home my parents told me anything left behind will be burned.” Today’s generation feels it is OK to stay home until they’re 30 years old and never buy a car.

The positive for the housing industry will be the Generation Y kids who will one day wake up and have children and realize the loft they are living in just won’t work. The Gen Y population is larger than that of the Baby Boomers….

The automotive industry continues to believe that, with the fleet age averaging 11 years or more, there is pent up demand for cars. However, both of the speakers (Kidd & Kuel) were not convinced that the auto industry will be able to produce another 500,000 more cars this year than last. Kidd pointed out that the F-150 will be out of production for an extended period of time due to the change-over to aluminum. The F-150 is Ford’s largest selling vehicle. Kidd put the potential growth at 200,000 to maybe 300,000 units maximum during 2014.

Another positive indicator mentioned was the potential of some form of infrastructure bill being passed by the government.

There were a number of challenges that the two speakers brought to the forefront as well.

Mr. Kuel said that this year will most likely be the year that the country will start to deal with inflation. The Fed is already talking about it, he said, and the extra 4 trillion dollars in the system will need to be dealt with.

China is in the process of transitioning their economy from export-based to consumer-based. There were only two countries that reported PMI under 50 in the most recent report – China and France. This transition will slow down their economy (and the question then becomes where does all the extra steel go).

Lastly, Mr. Kuel pointed out that the U.S. consumer is “depressed” and breaking that depression takes a long time. The limited growth the U.S. had last year was due to inventory build and not consumer spending. This is a problem.

Bottom line: The two men forecast a relatively flat market for 2014. Their advice was, “Hold to your rules. If you survived the last two years you understand the system.”

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