Steel Forecast 2005 - “Our Foggy Crystal Ball”

By Jim Stavis

     We are often asked by our
customers, “what can we expect for
2005?”. It is indeed a valid question
and if you were to ask 10 different
steel experts, you might get 20
different answers. There is no
consensus on what the future holds
because there are too many
unforeseen events that may have an
impact on the steel industry. No
one could have predicted what was
to occur in 2004. So we give you
our forecast for 2005 knowing that
it is, at best, a guess of what is to come.
What we do know is that there are
many what-ifs that could influence
the steel markets. They include the
cost of oil, Chinese consumption,
the growth in the American
economy, interest rates, terrorism
and even events that may occur in
Russia and India. Currently the U.S.
economy is still the largest consumer
in the world at $11.5 trillion. By
2020 it is predicted that the U.S.
economy will grow to $18.2 trillion
and China’s will be $5.3 trillion. China is growing at a rate that is
hard to imagine and India is next.
     In the short term, we believe the
steel markets will stabilize with
minor price fluctuations occurring
on a month-to-month basis. We
will not see the run-up of prices as
we experienced in 2004, nor will
we see the shortages and panic in
the marketplace that we have seen.

Steel mills will have to be sobered
up to the reality that the forces
that created the higher margins of
2004 will not exist in 2005 and
beyond. That does not mean that
they will return to a path of losing
money, but 2004 will long be
remembered as a vintage year.
Customers will be in a better
position to negotiate longer term
pricing once stability in pricing
returns. This will allow distributors
to negotiate with mills on behalf of
their customers to secure tonnage
and level pricing.
     According to the mills there is
still great demand for their
products, long lead times and upward
moving prices. There continues to
be shortages in the raw materials
and scrap markets. This will keep
their manufacturing costs high. As
a distributor, we don’t see the same
picture. We see a softening of prices
in certain products and a
weakening of demand in other
products. Ultimately this will be
reflected in the mill’s order book and
will be a precursor to lower prices.

Thanksgiving and a Steel Harvest

By Jim Stavis

     With the coming of autumn, I
was recently thinking about the
Thanksgiving holiday. Aside from
it being a time off work and a
signal for the beginning of the
holiday period, it once represented
much more than that. Before
formal religion was introduced,
ancient farmers used to believe
that their crops contained evil
spirits that caused crops to grow
and then die (hence, the
scarecrow). When the crops were
harvested, the spirits had to be
destroyed or it was believed that
they would take revenge on the
farmers that harvested them. The
harvest festival now referred to asThanksgiving was celebrated as a
way to defeat the evil spirits.
     In 1621 after a hard and
devastating first year in the New
World, the Pilgrims Fall harvest
was successful and plentiful. They
had lived in the wilderness and
harvested enough food for the
entire winter period. This too was
a cause for celebration. The
Pilgrims had made peace with
their Indian neighbors and shared
this holiday with them as well as
the early colonists.
      In 1863, President Abe Lincoln appointed a national day of Thanksgiving that would be on the 4th Thursday in November to commemorate this special holiday.

It was many years
later when the Detroit Lions and
Dallas Cowboys would choose to
play their NFL games on this day.
     In many ways the steel industry
has celebrated their own steel
harvest this year. Unlike past years
they figured out a way to make a
profit and are now quite thankful
for that. And thanks to some
governmental intervention, they
warded off the evil spirits of cheap
imported steel so that they could
reap a record harvest at home. The
question for steel producers now is
how to continue to reap the
harvest. With prices at all-time
highs and with strong demand
and long lead times, will the
producers of steel be able to keep
those evil spirits away. Something
to think about as you finish off
that last slice of pumpkin pie.