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Market Forecast 2007
The following forecast is excerpted from Modern Metals (the magazine for metal service center, OEMs and fabricators) October 2006. It has been summarized for brevity purposes.
Carbon and Alloy Plate
In 2007, plate will remain a fairly consolidated product segment. Global growth will continue to drive increased plate consumption and more than half the growth from 2006 and 2007 will come from Asia. There will be strong demand across all sectors especially in machinery and construction equipment. Railcars will have strong bookings in 2007 with car capacity being added. Shipbuilding is off from historical standards, but more projects for containerships are planned. In the next three years the number of ships that can carry 8,000 containers will increase from 83 to 232. The market for bridge fabrication has not shown substantial growth, but should pick up in the second quarter of 2007. Tank manufacturers are seeing improved business levels with bookings far into the new year. Truck and trailer business is strong due to the overall economy with an increased need for transportation.
With strong demand, increased mill production, heavy imports and rising inventories, the plate market is moving on a congested highway at a high rate of speed. With little stopping distance, as long as end market demand remains strong, all will be well. Look for pricing to remain strong as well.
Tubular Products
When you take this market segment's ups and downs, increased energy costs, the possibility of trade actions against imports and the effect of geopolitical events on consumer confidence and buying patterns, chances are that tubular volume will remain relatively flat or possibly increase between 2% to 5% in 2007. Energy related products will carry the industry in 2007 and are expected to continue through 2010. Drilling, pipeline and refining projects will drive a tight supply of tubular products. There may be a boost from the construction of ethanol plants and the development of alternative fuel sources. But vehicle production will be slower in 2007 from the prior year (s). Aerospace and defense, a smaller segment of the market will continue to be strong, while transportation, dominated by the passenger automobile is expected to be flat. Growing customer preferences for metallic appliances will help offset the slowing in the consumer durable market due to the downturn in residential construction. Imports represent about half of the tubular market and China is the world's largest consumer.
Globalization of steel vendors and a weak dollar will limit imports and import opportunities. Pricing may be flat except for the energy related products. We'll need all the oil and gas we can get, and it's going to cost more to go and find it.
Stainless Sheet, Bar and Plate
In 2007 those who produce stainless steel products will maximize their commodity's versatility by continuing to break into new markets. They are doing so in spite of the high price of nickel and that will be the challenge. 65% of the worldwide nickel consumption goes to the top stainless steel producers. Stainless steel supply is still very tight, some products tighter than others. The mill lead times are long and the prices keep rising. So to keep up with the rising demand, another new crop of production facilities are on the horizon, but won't be on stream for a couple of years. As long as demand is up and supplies are tight, there will be a continued escalation of prices.
Big price tags leave the stainless market with record low levels of inventory. Also end users are not stock piling inventory either. So while the shortages exist, customers are left searching frantically for available inventory to run their facilities. But high prices do not equal a weak market, just a volatile one. While appliances are only projected to increase 1% to 2% in 2007, the food services sector is projected to increase (up 4% in 2006). For the majority of users, the stainless steel industry has been difficult to forecast. The ups and downs of traditional markets compound the efforts to make a reasonable prediction. Add to that the metals' newfound markets and the task gets that much trickier. It seems however that the more applications deemed suitable for stainless steel, the more stable the market becomes. Stainless steel has found its way into maritime products, automotive parts, the pipe and tube industry, and energy related fields including coal fired plants, nuclear plants and alternative fuels. As engineers discover new uses, the market will strengthen.
Carbon Flat-Rolled
End users in the carbon flat-rolled market can look forward to a more stable marketplace in the coming months. A lot of the stability comes from the consolidation which continues globally. Global steel consumption for 2006 and 2007 will increase by about 70 million tons or 6%. One of the main questions in the industry concerns hot rolled prices. Currently it seems as if prices have peaked, but how far will they slide? Some of the decreases in prices can be attributed to seasonal demand, but the market is hard to predict beyond the short term. In addition, consumer spending has an effect on prices and consumers are feeling the effect of increasing energy prices. If gas bills continue to rise, consumers will be less likely to buy new cars, houses or other manufactured goods.
Prices for hot rolled coil have dropped from their high in 2004, but are still higher than historical averages. China is still a big concern in the industry. If China's economy continues at the current rate, there will continue to be shortages in hot rolled keeping prices in check. But if their economy were to show signs of cooling it could signal a hard landing for products such as hot roll coil.
While U.S. GDP is expected to decline to below 3% for each remaining quarter of 2006 and all of 2007, there will be a continuing slowing of the manufacturing sector. The industry remains in limbo as it waits to see how far prices will fall and what effect the energy prices will have on consumers. It is a state that the industry is used to, but nevertheless, not a comfortable one.
Bar Products
Steel bar products made up only 16% of domestic steel shipments in 2005, but when it comes to everyday things, bar seems to be everywhere. From automobiles to commercial buildings, bar is a staple of the metal consuming diet. In 2005, shipments for reinforcing products were a number one pick at 43% with hot rolled a close second at 38%. While attempting to get a clear picture out of the crystal ball, the individual markets that the bar industry serves must also be taken into consideration. Off-highway, aerospace, energy and service center shipments are all up which is encouraging. The agriculture, rail and light truck industries have been more on stable ground in the past, but things can always be worse than neutral. And since the only segment feared for a downturn is medium to heavy trucks, inventories should stay at reasonable levels. It is expected to be an average expectation kind of year, not particularly good or bad. Any disruption in energy, health care, interest rates or labor could tip the scale one way or the other. For now, bar producers are hoping for calm waters.
Structural Shapes
Virtually every mill is running at full capacity to supply merchant bars and structurals. That pace is expected to continue through 2007 and into 2008. In the end of 2005 and early 2006 there were some closure of structural mills that made for tightness in the market. Add to that a large list of major construction projects in the bidding stage, many of which seem to be moving forward and high activity in most structural market segments and you have the makings of a strong year. By the end of 2006 it is expected that net growth will be 7%. Similar growth is expected through 2007 and into 2008.
The first half of 2006 was particularly strong as non-residential building increased by 17% and non-building construction was up 13%. Residential slowdown reflected a 1% decrease in the same period. According to the MSCI, carbon structural shipments from service centers were up 21% in the United States in 2006. Longer lead times from the mills are contributing to the inventory build up. Non-residential construction is expected to continue the growth it has enjoyed for the past three or four years. Growing markets within construction will be mixed-use facilities with combinations of housing, office and retail in one structure, and rental housing including hotels. Growth is also anticipated in transportation segments, barges and railcars. It has been said that the beam market is the "wild card" in the structural market. If that market stays strong as it is today. Chances are we will see structural tubing do more in building construction. The wide flange beam market has been tight, with imports almost doubling this year. Worldwide demand for beams has been strong with no expectation of it letting up in the near future. Until capacity grows or demand recedes there will not be any softening of prices.
Aluminum
Energy prices have been at astronomical highs. Consumers are still fuming over utility bills and the price to fill up their SUVs. Cutting energy consumption wherever possible will keep stress levels lower as bills start to accumulate. Unfortunately aluminum producers don't have the benefit of reducing their energy consumption. A certain temperature must be achieved in order to smelt aluminum. There's just no getting around it. The energy required to smelt enough aluminum for one soda can could keep a light bulb burning for two hours. In 2005, nearly 99 billion aluminum cans were produced in the United States alone. Since 2000, the cost of raw materials has gradually risen. Production growth has slowed, but with smart management, capacity utilization has remained steady. During the past year, sheet markets have grown, primarily serving metals-hungry China. Increases in North America products have emerged due to demand from the truck and trailer sectors. Residential construction is also responsible for fortifying the flat rolled market, which makes up 35% of global aluminum consumption totals. Despite flat rolled success, other aluminum sectors have remained sluggish. Plate, can and foil stock have all crept along for the past five years. Although aluminum appears to be struggling, it should perform well enough in 2007.
It is hard to know where pricing will be. It depends on demand, the effect imports will have on the market, how the dollar compares to other currencies and how much usage there will be around the globe. Analysts believe that aluminum will make a soft landing in the beginning of 2007, but the year long outlook is positive. Alcoa announced plans to increase its capacity by 50%, Kaiser Aluminum is in the process of expanding its rolling mill capacity and Alcoa invested $27 million to expand its plate capacity. These moves would indicate confidence in the direction of the market.
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