Steel industry future brightens as orders rise, imports head down
The steel industry is looking for a modest upturn in business this year, with good news coming on two fronts. The United States has gotten nearly all the major steel producers to limit their exports to this country. Japan, the last major holdout, is expected to make public its five-year, product-specific agreement with the US within a week, according to assistant US trade representative David Demarest.
Meanwhile, demand for steel in the US is heading up again, modestly. In January, for example, steelmakers reported shipments to automotive manufacturers were 29.1 percent above January 1984; shipments to oil and gas industries were up 28.9 percent.
This good news, however, is tempered by a number of question marks currently overhanging the industry.
``We stand now at a sort of turning point,'' says one industry source, but ``of what magnitude is still uncertain.''
The voluntary import restraints negotiated by the US with Japan and seven other steel exporters are some of the toughest and most comprehensive import curbs the industry has had. The measures limit The amount of steel a country may bring in. Japan, for example, will cut back from the 7 percent of the US market it had last year to 5.8 percent for 1985, according to Mr. Demarest. And, just as important, the agreements put CAPS on specific steel products -- not just the overall amount of steel -- that a country can bring in .
The impact of the import restraints, however, may not be felt until the second half of 1985.
``The voluntary restraints are going to help, but it's going to take a while,'' says Peter Anker, senior metals analyst of First Boston Corporation.
The reason, industry sources say, is that imports may not be brought under control immediately, even with the restraint provisions. Under the agreements, steel imports will be limited to a percentage of the US market -- perhaps 20 million tons in the year beginning last Oct. 1. But in the first four months of that period, 9 million tons ``about half of the total for the year'' already had been imported, according to the American Iron and Steel Institute (AISI). And industry sources say they doubt the US will clamp down so severly as to bring the import totals completely in line with the negotiated quotas.
``It's unlikely they will be able to come within the target this year,'' says John Jacobson, manager of the steel service of Chase Econometric Associates.
The other major uncertainty is whether steel prices will recover significantly this year, economists say. Currently, there is so much steel available that steelmakers often have to reduce prices substantially to sell their products. The import restraints and increased demand are expected to help firm up prices. But some important steel users, such as automakers, already have locked in their buying price for 1985.
That leaves little opportunity for prices to rise dramatically. Mr. Anker of First Boston, predicts a 2 to 3 percent price uptick on average. For the year, analysts predict that domestic shipments of finished products will increase somewhat more than the 73 million tons shipped in 1984, perhaps 76 to 78 million tons.
The combination of somewhat higher prices and demand could make several large steel companies profitable or nearly profitable on their steel operations this year, analysts say. Most suffered losses for '84.
But a dramatic turnaround for the steel industry could not occur until at least for 1986, and some analysts don't feel it will happen then. ``We expect '86 to be slightly higher than '85,'' Mr. Jacobson says.
Whatever the outlook for the industry, the picture for steel employment remains very dim. Analysts say companies are continuing to boost productivity while trying to slash costs, including labor. In January, employment fell to 210,775 -- the lowest level since the AISI began keeping such monthly records in the early 1930s.
``We're going to go down yet,'' Anker says. ``This industry, wherever possible, is going to cut out people.''