Economic boom boosts steel comeback
Steel companies, having broken out of years of decline, are forging ahead to new profits. From 1982 to 1986, United States steel companies lost $12 billion. But such things as capacity cutbacks, modernization and streamlining, a weakening of the dollar that has cut into foreign competition, and a boom in the national economy have combined to give steel a comeback.
``The steel industry is experiencing its strongest markets since 1968, owing to the industrial thrust in the economy,'' says J. Clarence Morrison, an analyst with Dean Witter Financial Services Inc.
In fact, the boom in steel is linked to the boom in the broader economy, says Christopher Plummer, the director of the US and world steel service at the WEFA Group in Bala-Cynwyd, Pa.
``The boom is largely affecting the capital-goods sector - equipment, machinery, that sort of thing,'' he says. ``And anytime you have that type of an economic boom occurring, especially favoring those sectors, that's going to greatly benefit the steel industry. And we saw something similar to this happen in the late '70s and 1974. Again, the 1974 boom was very similar to this in that it was a capital-goods-sparked steel boom.''
Mr. Plummer says the future outlook for steel stocks depends on the strength of the economy as measured by such things as overall growth of industrial production and the gross national product. WEFA economists, he says, expect the dollar to remain very competitive for some time.
``Fundamentals strongly suggest that - that the dollar needs to be kept at a stable and low level compared to other currencies in order to reduce the trade and budget imbalances and that that is in fact the most likely scenario in our long-term forecast,'' he says.
That's good news for the steel industry, Plummer maintains.