Record high job losses and abandoned construction sites meant trouble for the steel sector last year. Demand was down, production cuts continued and prices remained sluggish.
According to a November 2010 report by Zacks Equity Research, the year started well for the steel industry, with improving demand in several markets that led to a steady rise in steel production worldwide, including all major steel-producing countries (Brazil, China, Germany, Japan, Russia, Turkey, United States and Ukraine). The World Steel Association anticipated global steel demand to rise 10.7 percent to 1,241 million tons in 2010, compared to a 6.7 percent decline in 2009.
Closer to home, North American steel output increased to 74.8 million tons in the first eight months of 2010, compared to 57.4 million tons in 2009. The
World Steel Association predicted the industrial sector would drive a 26.5 percent increase in steel demand in the United States in 2010, although the U.S. Department of Commerce International Trade Administration said the domestic steel industry posted a net loss for the first three quarters of 2010—its seventh straight quarterly loss.
It comes as a positive sign that some of the domestic steel mills that shut down production when the economy nose-dived have since reopened. However, this was not the result of increased steel demand from the construction sector. Rather, businesses were restocking their depleted inventories, according to Michael Rippey, president and CEO of ArcelorMittal, the world’s largest steelmaker. In addition, the industry saw a slight increase in orders from the automotive industry.
Both
ArcelorMittal and
U.S. Steel, this country’s largest steel company, cited the slow recovery in the construction market as a primary reason for the decrease in productivity.
Will 2011 bring any improvement? The general consensus is further recovery, albeit slow, is on the horizon. As noted in the Zacks report, the demand for steel is likely to improve only gradually, in line with the recovery of the automotive and construction industries. McGraw-Hill Construction forecasts 8 percent growth in the construction industry for 2011, citing residential construction as the primary reason for the increase, coupled with contributions from commercial and manufacturing building projects.
Likewise, the results of an October survey among the Young Presidents’ Organization, a group of 1,167 CEOs from across the nation, indicated confidence in the economic outlook for the construction industry for the first time since last April.
Based on this data, the World Steel Association expects U.S. steel demand to increase 7.5 percent this year.
Even if construction has already reached rock bottom, steel companies still face a tough year ahead.
Companies that take a proactive stance to dig their way out of the recession are far more likely to retain current customers and break into new markets than the firms that simply wait for the economic upswing.
Even in these tough times, construction manufacturers are emerging with innovative, competitively priced building materials. Revolutionary products that incorporate lightweight features, designs that improve site safety and a commitment to sustainable development can enable small and mid-sized companies to level the playing field with larger, national competitors that have sizeable research and development budgets.
Steel companies that want to attract more construction business must offer real value to contractors, particularly in the realm of service and timely deliveries. Just as it is important for contractors to be ready to move as soon as a project gets the green light, manufacturers must have a sound service logistics plan to deliver goods as promised—and not just for the first delivery, but throughout the full term of the project.
Unfortunately, 2011 will be another tough year in the construction industry. But with a well-thought-out strategy and some product innovation, it also can be a successful and profitable year.