By Taras Berezowsky
American Iron and Steel Institute (AISI) CEO Tom Gibson is still optimistic on the forecast for the U.S. steel industry and its performance in the second half of 2013, even though steel shipments are down this year.
However, in a press conference yesterday, after being asked if he thinks the Federal Reserve's bond buying decisions in its upcoming meeting will affect the manufacturing landscape, Gibson told MetalMiner that the big economic concern is how the U.S. government will choose to deal with the impending shutdown scheduled to go into effect Oct. 1.
"The expectation is that we'll continue with tepid but real recovery, so long as the federal government doesn't throw a money wrench [into it]," Gibson said. "There could be an adverse reaction is federal government shuts down."
If Uncle Sam Shuts Down, Big Steel Down With It?
There are many economic issues in the air right now that could have direct or tangential effects on the domestic steel sector's growth.
While Congress is tied up with the Syrian conflict and sequestration issues, rising interest rates are also a concern. "The Fed's signals about reducing bond-buying have driven interest rates higher," the WSJ reports. "The 10-year Treasury yield now hovers around 3%, up from less than 2% in May" - and that has dented the housing recovery.
But the impending government shutdown is still No. 1 on AISI's list.
"Any kind of extended shutdown would affect GDP pretty quickly, and hit consumer behavior first," Gibson said. "The shock to the market by a default could have a more profound effect and a quicker effect. We're urging that not happen. We shouldn't risk a [government] default."
Steel Shipments Cause for Optimism?
With the memory of 2011 and 2012 in the backs of our minds - which featured strong first halves and weak second ones - Gibson pointed to steel shipments as a glimmer of light in the industry's tunnel.
"The summer of 2013 has held up better than the summer of 2012," he said. Indeed, according to AISI figures, US steel mill shipments increased 6% to 8,274,511 net tons in July over June 2013 (a 4.6% year-over-year increase). Year-to-date shipments, though, are down 4.1% - but at least that's coming down, from an 8% decrease the same period last year, according to Gibson.
Steel Imports, Oversupply Bearing Down
However, still disconcerting are the figures that point to oversupply and high imports. According to Gibson, there are still 600 million net tons of steel overcapacity (mostly in Asia, and especially China), and the U.S. is still at a 23% import market share - both of these facts are causing disruptions.
As far as public policy is concerned, we're at another "Wait and See" crossroads with the U.S. government. Check back in with us once the Federal Reserve board is done with its two-day meeting on its bond-buying program, which starts tomorrow.