Steel industry contemplates stimulus

February 19, 2009 – 3:34 pm-->By Janet Nodar Breakbulk News

While speakers at the 20th annual Tampa Steel Conference differ on their estimates of just how much the federal stimulus package will affect the steel industry, they agree that it is intended to “light a spark” rather than effect a rescue.

Mario Longhi, president and CEO of Gerdau Ameristeel, estimated that $70 billion of the $800 billion stimulus package will be relevant to the steel industry, including about $29 billion for transportation infrastructure, about $13.5 billion for building and repairing federal buildings and public infrastructure, about $18 billion for water-related projects and about $10 billion for rail and mass transit.

But he said this falls far short of the annual $225 billion that the National Surface Transportation Policy and Revenue Study Commission says would be necessary for each of the next 50 years to ensure that U.S. infrastructure in these categories keeps up with estimated capacity and maintenance needs.

The steel industry must grapple with the same challenges or opportunities facing the nation as a whole, Longhi said, including supporting global trade rules and restoring financial stability, which no stimulus package can do alone and which cannot happen until credit markets ease and bad assets are identified and made transparent.

Murat Askin, general manager of SteelOrbis Americas, said that these are “the worst possible times” in the steel markets. Few if any analysts predicted either the price explosion or the price crash of 2008, he said. Gloomy signs include the contracting U.S. economy, Europe’s highly leveraged banking system and what appear to be growing problems in the Middle East, including high steel inventories and cancellation of planned projects.

By Askin’s count, the stimulus package will mean about $85.7 billion in infrastructure spending that will result in $2 billion to $3.85 billion in steel purchases over perhaps two years, enough to increase U.S. production only 1.68 to 3.17 percent. However, the stimulus bill also encourages business investment in plants and equipment and includes tax cuts that may encourage spending, provisions for energy-efficient school modifications and other projects that may spur steel production.

Lewis Leibowitz, a partner with the law firm of Hogan & Hartson, said the stimulus bill’s goal is to find a way to use public spending to “light a spark” and trigger private investment. The U.S. is on the cusp of major changes, he said, as the government struggles to right the banking, housing and automotive sectors. “What we do should create jobs throughout the economy, not just in one sector,” he said.

Leibowitz pointed out that steel exports grew 20.8 percent last year to 13.5 million tons. CAFTA and NAFTA countries accounted for almost 10 million of those tons. “CAFTA is one of the fastest-growing markets for U.S. export steel.”

Panama, Colombia and Korea are also potential growth markets for U.S. steel exports, although protectionist policies designed to shelter the U.S. steel industry from imports will hurt this potential.

Despite the global downturn, Dusseldorf-based ThyssenKrupp is proceeding with multibillion-dollar investments in a greenfield Brazilian slab mill and a greenfield carbon and stainless mill in Calvert, Ala.

At full capacity, ThyssenKrupp expects to import some 4 million tons of slab through Alabama from the Brazil mill annually, said Bob Holt, vice president of sales and marketing for ThyssenKrupp Steel USA.

The Alabama mill will produce 4 million tons of carbon steel annually and 1 million tons of stainless steel at full capacity, Holt said. Carbon will be in production in 2010, while the stainless side has been deferred for 1 ½ years because of the recession. The Alabama mill will produce finished coils aimed for the southeastern U.S. and Mexico markets, he said. Approximately 39 percent of that output will be geared for the automotive industry, including German automakers located in those key regions.