Platts Steel Conference: Demanding times

Despite vigorous competition from overseas markets and other basic materials, demand for North American-made steel may be set for an increase in 2016 and 2017, according to several speakers at the 2016 Platts Steel Markets North America Conference, which took place in Chicago in mid-March. Good news for domestic steel demand should invariably lead to better news for ferrous scrap prices.

In the automotive sector, vehicle sales figures are at an all-time peak. “Current conditions for U.S. auto demand are as good as it gets,” said Richard Hilgert, an equity analyst with Chicago-based Morningstar. He cited low interest rates and a low unemployment figure as helping lead to the positive market conditions.

The “long, slow recovery” in the U.S. economy means those sales figures “should be bouncing along near the peak for a few years,” Hilgert added. Business cycle and demographic reasons, however, mean Morningstar has its forecast for vehicle sales “tailing off in 2018 and beyond.”

Both Hilgert and P.K. Rastogi of AK Steel, Middletown, Ohio, offered positive comments about steel’s ability to compete in the automotive sector. Rastogi said advanced high-strength steel (AHSS) alloys are helping steelmakers compete against aluminum and plastic in an era of automotive lightweighting.

Rastogi said despite U.S. government CAFE (corporate average fuel economy) standards heading toward fleet averages of 55 miles per gallon, only “so much” lightweighting can take place without affecting the safety performance of vehicles. He added that for safety, affordability and sustainability (recyclability) reasons, steel remains a competitive material in the auto sector.

Sustainability also is on the minds of architects and builders, where steel competes with a number of materials for market share, according to John Cross, vice president of the Chicago-based American Institute of Steel Construction.

Cross said commercial and industrial construction firms considered 2015 as “an extremely disappointing year” in those sectors, which tend to consume the most steel. He said non-residential construction was down by 2 percent in 2015 and that construction in all the sectors that are considered steel-intensive “grew less than 0.5 percent; it was essentially flat.”

Although some forecasts see an increase in non-residential and multi-story residential construction in 2016, Cross said “we see a flattening” in 2017, and by 2018, “a decline, as the current construction cycle runs its normal course” following a seven- or eight-year recovery.

The natural gas and oil drilling sector, which experienced a dismal year in 2015, may have nowhere to go but up in a few years, according to Nicole Leonard of Denver-based Platts Analytics/Bentek.

Although North American crude oil and natural gas markets may be currently oversupplied, Leonard said Bentek’s forecast has oil bouncing back to reach $75 per barrel levels “by the end of the decade.”

In the near term, however, “it’s going to take quite a while to work through three years of oversupply, including in 2016,” said Leonard. Eventually, however, global demand should reach the point where the United States will start to export some of its liquid natural gas (LNG), eventually helping the drilling sector and the steel mills that support it.

Philip Bell of the Washington-based Steel Manufacturers Association (SMA), whose members are heavily weighted toward the scrap-intensive electric arc furnace (EAF) sector, said that while many steel consuming sectors showed growth in 2015, the struggling energy market affected overall figures.

“Apparent steel use” in the NAFTA (North America Free Trade Agreement) region fell from 146.4 million tons in 2014 to 140.9 million tons in 2015, he noted. The 2016 forecast of 143.1 million tons considers in part the likely impact of trade sanctions to keep subsidized foreign-produced steel out of the U.S. market.

Bell said there “had been a large percentage of finished steel imports flooding the NAFTA market,” with imported steel’s market share rising from 12.5 percent in 2010 to 20 percent in 2015.

The 2016 Platts Steel Markets North America Conference took place March 14-15 at the Ritz-Carlton Chicago.