I want to thank the Chinese Iron and Steel Institute for the opportunity to speak to this important conference again. I am proud to represent the members of the American Institute for International Steel, the only US-based steel trade association that promotes real free trade in steel. AIIS represents North American steel importers and exporters, distributors, processors, port authorities, stevedoring firms, customs brokers, freight forwarders, ocean carriers, railroads, trucking firms and one steel producer and a bank. In short, everyone in the steel supply chain in our market.
STEEL MARKET OVERVIEW
The US steel market and US economy seem to contain a series of contradictions. While the banking crisis has created the environment for a recession that many believe is already here, the domestic steel industry has been raising prices, producing at full capacity and for some products, putting customers on allocation. Many sectors of the economy are weak, autos, housing and white goods and if one asks steel executives from mills or service centers, they seem mostly to agree that demand is not all that strong, with of course some exceptions, such as in energy related markets.
The steel market in 2007 was weaker than in 2006 to be sure, with imports down by 26.6%, shipments down by 3.1% and the overall market down by 10%. However, the steel market was not as weak as the data suggest due to unusually high inventories at the beginning of 2007, which turned out to be a year of inventory correction which took essentially all year. Imports, however, experienced a merciless decline through the year, battered by the weak dollar, higher prices in many international markets and freight rates that escalated to levels unheard of in the past.
So, 2008 dawned with low inventory, setting the stage for price increases in the US market. And prices have escalated at a rapid pace, with hot rolled sheet rising to nearly $800 per ton for shipments April 1 -- up by $225 per ton since August 2007. According to press reports, the domestic industry believes that prices will continue to increase in the near future. While the US market has been experiencing this surprising run, the rest of the world has not been sitting still. Western European HR prices are over $830 per ton, with China increasing to $604 per ton and the world export price rising to $767 per metric ton according to press reports.
With prices strong in most international markets and the weak dollar, times are still tough for American importers. That said, there is one immutable fact that has to be taken into consideration ' domestic producers cannot supply all the steel required by US producers. At least 20% of the US market is dependent on imports and so we are starting to see some import business being concluded at prices higher than domestic. We do not believe that this condition can last for long. In the past when market conditions resulted in imports arriving at prices higher than domestic, the domestic mills quickly raised prices until the normal differential required to do the import business re-appeared. Recent press reports suggest that this trend is just now beginning.
Whether the US economy is destined for a recession is still unknown at this point, but it seems obvious that there is clear sailing for domestic producers through the second quarter at least.
As to all the weak markets we keep hearing about in the US, one report from the Associated General Contractors of America in late February suggests the opposite. They reported that non-residential construction increased in 2007 by 16% over a strong 2006 and they predict that 2008 will have continued but slower growth in the 4-8% range. Clearly, this is not the stuff that recessions are made of. Purchasing Magazine also reported that its manufacturing index stood at over 52 for the month of February.
