After a dismal 2001, steelmakers should get some relief in 2002. Last year was so bleak that 12 U.S. steel producers sought bankruptcy protection, as excess steel supplies and a cooling economy eroded profits. But pending trade actions against steel importers, along with cutbacks in domestic production, will likely lift steel prices even if the economy remains weak. Meanwhile, production of aluminum is expected to notch a slight gain, after falling 6% in 2001. Despite that drop, the U.S. aluminum industry is far healthier than steel--and continues to make inroads in the auto market.
In 2001, U.S. steel consumption fell by 10%, more than canceling out the uptick in 2000. Making a bad domestic situation worse, U.S. steelmakers got hammered by a surge in low-priced imports that sent some prices tumbling more than 30%, to near 20-year lows. As profits evaporated, the parade to bankruptcy court continued. In October, Bethlehem Steel Corp. (BS
) became the 27th steelmaker to file for protection since 1999.
At a glance, 2002 doesn't look much better. Nonresidential construction, which accounts for 60% of steel usage, is slowing. Auto sales will also slide in 2002. As a result, Locker Associates Inc., a New York steel consulting firm, predicts U.S. demand will hold level with 2001, at 117 million tons.
A price rebound is possible--though it will require government intervention. President Bush is expected to launch trade actions in February against several foreign steel exporters, which could stem the tide of cheap imports. Meanwhile, domestic capacity is getting scaled back. A few troubled U.S. suppliers are shutting down production, at least temporarily. And several of the nation's biggest steelmakers, including the U.S. Steel unit of USX Corp. (X
) and Bethlehem Steel Corp., are endeavoring to merge. The resulting mega-mill would further shed capacity and is therefore likely to be approved by federal authorities, says Mike Locker, head of Locker Associates. And there is even the chance that prices could firm up sooner. Nucor Corp. (NUE
), the nation's largest steel producer, has floated modest price increases. Chief Executive Daniel R. DiMicco thinks they will stick: "Supply and demand will come into balanceeven in a recessionary period," he asserts.
Aluminum shipments were bedeviled last year by the sagging fortunes of the manufacturing sector. The Aluminum Association Inc. reported that orders fell 14% in the first half of 2001. Demand recovered in the last few months, though, and metals consultant Brook Hunt estimates last year's total consumption in the U.S. was down 6.2%, to 5.95 million metric tons. This year, Brook Hunt predicts, U.S. consumption will rise almost 4%, to 6.17 million metric tons.
Detroit is a major battleground for producers of both metals. Steel continues to be the material of choice for body panels. But Ford Motor Co. (F
) is switching to aluminum hoods and front fenders for its 2002 Ford Explorer and Mercury Mountaineer sport-utility vehicles. And aluminum is making steady gains for some other vehicle parts, such as engine blocks and suspension systems, as carmakers strive to improve fuel efficiency and performance by reducing overall weight. A survey by the trade journal American Metal Market pegs the average aluminum content in Detroit's 2002 models at 268 pounds, up from 255 pounds the previous model year. General Motors Corp. (GM
) takes the aluminum prize, with SUVs that contain up to 400 pounds of aluminum.
Producers of steel and aluminum were hoping the economic-stimulus package would boost demand by breathing new vigor into manufacturing. But even without that, auto makers are thinking about reviving development projects that have been on hold. Don H. Davis Jr., chairman of Rockwell International Corp. (ROK
), a big maker of factory equipment, says he believes the manufacturing sector "will see some pickup before the end of 2002." For metals producers, sooner would be better.
By Robert Berner in Chicago
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After a dismal 2001, steelmakers should get some relief in 2002. Last year was so bleak that 12 U.S. steel producers sought bankruptcy protection, as excess steel supplies and a cooling economy eroded profits. But pending trade actions against steel importers, along with cutbacks in domestic production, will likely lift steel prices even if the economy remains weak. Meanwhile, production of aluminum is expected to notch a slight gain, after falling 6% in 2001. Despite that drop, the U.S. aluminum industry is far healthier than steel--and continues to make inroads in the auto market.
