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Metals


Industry Outlook 1999 -- MANUFACTURING

Metals

If it's lucky, the U.S. steel industry will soon be recovering from last year's import crisis. But a lot of pieces need to fall into place: The economy must chug ahead and sustain demand for cars, appliances, and new buildings. And foreign producers will have to ease up on exports and allow the current inventory bloat to thin out. That won't happen overnight. "The first part of 1999 will continue to hurt, but things should fall in line by the second half," predicts Mark L. Parr, senior vice-president and steel analyst at McDonald Investments.

For now, the industry is still reeling from the tsunami of foreign steel that crashed ashore in 1998. In just months, Asian, Russian, and Brazilian imports leapt 100% or more. By yearend, some 40 million tons of cheap imported steel--30% more than in 1997--had clobbered margins. Prices of "hot-rolled" steel, the industry's bread and butter, fell up to 30%, to about $250 a ton. Some 10,000 steelworkers got pink slips.

Although the Clinton Administration has balked at protectionist measures, an industry counterattack seems to be making headway. Antidumping lawsuits were filed in September against several foreign producers, seeking penalties of up to 199% to offset allegedly unfair prices. "The avalanche of imports has slowed dramatically as a result of the trade lawsuits," says Keith E. Busse, president of Steel Dynamics Inc., a top minimill.AFTEREFFECTS. Still, any respite could be temporary, says Busse. The foreign producers may simply switch to cold-rolled steel, which isn't covered by the lawSuits. That's one reason the industry has proposed tough trade-law revisions that would force Washington to provide quicker antidumping relief.

Domestically, the aftereffects of 1998 could linger for years. There may be a new consolidation round, similar to the one after the import onslaught in the '80s. This time, heavyweights may gobble up minimills. Some smaller players have weathered the storm reasonably wellby controlling their costs. That impresses USX-U.S. Steel Group President Paul J. Wilhelm. He thinks a major mill-minimill blend might yield beneficial synergies.

In addition, big users of steel are sure to try to cash in on the low prices. Ford Motor Co.'s multiyear steel contract comes up for renewal in 1999, and tough bargaining is expected. General Motors Corp. and DaimlerChrysler may push to renegotiate their contracts as well.

Still, if the U.S. economy avoids a major slowdown, steel should hold its own this year, says Andrew G. Sharkey III, president of the American Iron & Steel Institute. He foresees 1999 shipments of about 102 million tons, roughly the same as 1998. Profits will remain skimpy, but any signs of recovery in Asia and elsewhere might help buoy bottom lines. That, like so many other factors affecting this industry, may turn out to be more wishful thinking than green-eyeshade reality.By Peter Galuszka in ClevelandReturn to top

TABLE

Positives and Negatives

POSITIVES

-- Streamlining has made U.S. steel better able to withstand the current downturn

-- A steel industry lobbying effort could result in tougher and faster-acting antidumping lawsNEGATIVES

-- A flood of foreign imports is causing drops in U.S. steel prices of up to 30%

-- U.S. steel producers are laying off 10,000 workers and thousands more could lose their jobsReturn to top


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