| BUSINESSWEEK ONLINE : JANUARY 10, 2000 ISSUE | ||||||||
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| INDUSTRY OUTLOOK 2000 -- MANUFACTURING
Metals With Washington's help, the U.S. steel industry has beaten back a devastating flood of cheap foreign imports. A robust economy, led by extraordinary demand for autos, has also helped bring prices and earnings back to healthy levels. This year, the industry is poised to build on 1999's gains. But Big Steel's big question still looms: Will it finally bite the bullet and undergo a long-overdue consolidation, just as aluminum did? The good news for steel is that a strong economy should keep demand robust, even though some analysts expect revenue growth to slow slightly in 2000. Imports will retreat from a record high of 23% of total consumption this year to about 21%, as antidumping duties and the Asian economic recovery do their work. ''Prices are being restored,'' says Curtis H. Barnette, chairman and chief executive of Bethlehem Steel Corp. (BS) COOLER MILLS. One pleasant surprise in 1999 was the big surge in auto production, to nearly 17 million units. That kept mills rolling out high-quality product. Demand for sport-utility vehicles, in particular, has been so strong that some mills are working at better than 100% of normal capacity. But that adds expenses in maintenance and overtime that have actually eaten into profits. Not to worry, though. Auto demand is expected to cool to a more manageable level of about 16 million units in 2000, giving mills a breather. ''We'll go back to operating at 92% to 93% capacity,'' says David S. MacGregor, a steel analyst at MidWest Research in Cleveland. At that point, ''steel becomes more profitable,'' he says. Other sectors, including office equipment, appliances, and construction materials, will continue to have a healthy appetite for steel as well. As long as consumer confidence remains positive and durable-goods spending holds up, ''I am expecting another good year,'' says MacGregor. Yet the generally good prospects will depend on the continued cooperation of the Clinton Administration in playing international watchdog on such issues as dumping. After the Asian and Russian economic crashes of 1997, exporters sought new homes for their product in the U.S. By 1998, imports climbed to a record level of 41 million tons. Retreating from his free-trade stance, Clinton took action against Russia, Japan, and Brazil, among other nations. The result: Imports slipped to 34 million tons and should drop to about 32 million tons in 2000. ''We've seen a dramatic impact where the trade cases have gone the full course,'' says Andrew G. Sharkey III, president of the American Iron & Steel Institute. These measures, plus the strong economy, have staved off what many consider to be inevitable consolidation in the industry. But the dam won't hold forever. While such minimills as Nucor Corp. (NUE) and Steel Dynamics Inc. (STLD) have been thriving, not all of the half-dozen big, integrated steelmakers are firmly in the black. LTV Corp. (LTV), whose stock slipped by half, to about $3 a share, is staggering under production and management problems. Analysts believe LTV is ripe to be carved up by competitors. Consolidation, MacGregor says, ''is out there--you know it's coming at you, but you don't know where.'' For an idea of what might be in store for steel, consider the aluminum industry, which is in the middle of a massive reorganization. Canada's Alcan Aluminum Ltd. (AL), the No. 2 aluminum maker, is buying France's Pechiney (PY) and Switzerland's Algroup. Not to be outdone, No. 1 Aluminum Co. of America is buying No. 3 Reynolds Metals Co. (RLM) Thanks to consolidation and the strong economy, aluminum prices zipped from 55 cents to 69 cents per pound in 1999. No one expected 1999 to be that good, says Thomas Van Leeuwen, a metals analyst at Credit Suisse First Boston. And he expects to be singing the same tune at the end of 2000. Indeed, Alcoa's (AA) stock more than doubled in the past year and topped $80 per share, a record high. While the aluminum industry may have its own dynamics, you can bet Big Steel is taking a very close look. By Peter Galuszka in Pittsburgh _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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 POSITIVES Trade barriers have stemmed the flood of cheap steel imports. Strong economy helps many steel companies rebound. Aluminum mergers seem to be boosting sagging prices. NEGATIVES Costs will go up for steel labor, scrap, and taconite pellets. Dream of steel industry consolidation remains unfulfilled. Big integrated steel companies like LTV continue to be laggards. INTERACT E-Mail to Business Week Online | |||
