Monday, November 24, 2008

A North American view on the crisis in the steel industry from Associated Press

excerpt from an article by Daniel Lovering

Just weeks after posting record profits, steel makers are facing a harsh new reality: dwindling orders, production cuts, layoffs. And tougher times lay ahead, analysts say.

The steel industry had been riding high earlier this year, as surging demand from China and other countries, coupled with soaring prices for materials used in steel making, produced the most lucrative market for the metal in more than 60 years.

But the credit crisis and global economic slowdown have undercut customers in key markets — construction, automobiles and industrial equipment — sending prices tumbling and prompting steel companies to slash production, scale back shipment forecasts, delay expansion plans and furlough workers.

Lower revenues and more layoffs loom in the months ahead, and production may not return to levels seen earlier in 2008 for more than two years, according to some analysts.

"The downturn has been dramatic, both in the speed and the magnitude," said Christopher Plummer, managing director of Metal Strategies Inc., a consulting firm in West Chester, Pa. "It's quite concerning and alarming."

John Anton, a steel economist with IHS Global Insight, said he expects U.S. steel production to fall next year, and that steel companies will be lucky to make about 65 percent as much as they did in 2008. Revenues could fall 35 to 40 percent, and pre-slowdown production levels may not return until 2011.

Layoffs and production cuts are inevitable, but "as long as (steel companies) saved some of the huge profits they made in 2008 ... they should survive," he said.

The article paints a bleak picture, but one that is being echoed around the world as the steel industry feels the effects of the collapse of the construction and automotive industries.

It's not only the scale of the fall in demand that has shocked the industry, but the speed at which hit.

On the back of record profits in the past year, many steel companies embarked on ambitious expansion and takeover plans, that may now have to be abandoned in view of the credit crisis and its impact on consumption.

It's going to be a very tough year ahead for the steelmakers, and it's hard to envisage that there will be no casualties.

It is well worth reading the full AP article here

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