CRU Conference Day One: The North American Steel Markets in 2013 and Beyond
The event opened on 11 November with a keynote presentation from Nucor’s CEO John Ferriola, who provided an overview of the advantages of the new energy paradigm on steelmaking costs. America’s shale gas revolution is creating a significant competitive advantage for U.S. manufacturing, but everyone needs to work together to leverage the incredible opportunity, he said. The investments being made and the reshoring being experienced in America’s manufacturing sector are just the beginning of what he believes will be a flood of investments over the next few years.
Kaylan Ghosh, CEO of Essar Steel Algoma, followed with another keynote presentation focusing on the bright spots and demand drivers in the North American flat rolled steel market. “Things are coming back,” he said, as there have been signs of steady growth in the economy and steel end markets since 2010. Reshoring is occurring, as more and more companies and consumers commit to U.S.-sourced material and look beyond the basics of labor to weighing the impact of the total cost of offshore manufacturing, he explained.
A third keynote from Severstal North America’s CEO Saikat Dey explored the possibilities and challenges of steel beating the commodity cycle. “The complete inability to predict [a cycle] is what makes it fun,” he noted. After Severstal bought its North American assets at the peak of a cycle and then sold some of the assets at the bottom of the cycle, effectively losing US$3 billion in the process, the company is now ready to move forward, focusing on procurement, sales and its people, the new CEO explained.
Following the keynotes, the first session focused on pricing in the steel industry. A presentation on the steel sheet market from Josh Spoores, CRU principal consultant — steel, provided a relatively optimistic outlook for the industry. From 2014 to 2018, he predicted a 3.9% compound annual growth rate (CAGR) in apparent sheet consumption in the North American market as mills begin to see a much-improved operating environment.
The recently-retired managing director of KeyBanc Capital Markets, Mark Parr, spoke on global dynamics and the erosion of pricing power. He noted that momentum in the manufacturing sector is looking strong in the U.S. when compared to China, although the Asian nation will be enhancing its global competiveness over the next several years.
In session two, Aldo Mazzaferro, managing director and senior analyst, metals and mining for the Macquarie Securities Group, presented on cycles in the service center sector. Service centers are showing some caution with current inventory levels, but a recent upward trend shows some return of confidence, he noted.
The third session was a panel discussion on the advantages and challenges of using steel futures contracts.
After lunch, the last two sessions of the afternoon focused on economics of the day. A presentation by Robert Johnson, director of economic analysis at Morningstar Inc., showed that the U.S. is surprisingly well-positioned because of new oil and natural gas production, a large land mass conducive to spending on construction and automobiles, a decent supply of natural resources, leading in agriculture, and strong investments and spending in autos and aircraft.
Ken Simonson, chief economist at the Associated General Contractors of America, showed that construction is growing, albeit unevenly. Shale gas investments are having positive impacts on construction; the expansion of the Panama Canal is creating investments on both the East and West Coasts, at ports and railroads and the areas surrounding; and tight credit and changing demographics and preferences are favoring multi-family construction growth, he said. Three trends challenging overall construction are: the government spending less on schools and infrastructure; consumers switching to online buying means less construction of shopping centers; and employers shrinking office space per employee, resulting in less spending on office construction. Simonson predicted a 5–8% growth rate in construction spending for 2013, followed by an annual growth rate average of 6–10% from 2014 to 2017.
Presenting on the residential construction markets, David Crowe, chief economist at the National Association of Home Builders, said there strong fundamentals in place for a recovery in the housing sector: pent-up demand, strong demographics, and population fundamentals. He said there are reasonable expectations for improvements in both single- and multi-family construction, as well as the remodeling sector. He predicted more substantial growth to occur in 2014 and 2015.
Speaking about the automotive sector, Richard Hilgert, securities analyst, automotives at Morningstar Inc., said conditions look positive for continued demand recovery in the automotive market in 2014. Positive vehicle fundamentals—among them, older vehicles with more miles, growing number of licensed drivers, high used car prices, and more readily available credit—indicate substantial pent-up demand, he said, predicting sales to rise to between 15.8 and 16.2 million units next year, and then to pre-crisis levels by the last quarter of the decade.
Day two continues on 12 November with presentations on currency, energy, raw materials, scrap and long products, and creating valuing through purchasing.