A Weak Dollar Strengthens the Prospects of Rising Steel Exports for US Mills
By Lisa Gordon
Published: February 1, 2010
For years, the words 'steel trade' were virtually synonymous in industry circles with wave after wave of cheap imports and expensive and time-consuming anti-dumping and countervailing duty filings to stop them. The trade suits keep coming, but for the first time in a long time a combination of factors-not the least of which is a weak dollar-have strengthened the prospects of the export market.
A weak U.S. dollar, globally competitive prices and growing foreign economies are expected to help boost U.S. steel exports in the long term, but the mounting increases in hot-rolled prices could put a dent in export profits and potential in the short term.
"Our members look upon exports as a sales opportunity, especially as U.S. mini-mills are recognized as low-cost, globally competitive, quality producers," said Thomas A. Danjczek, president of the Steel Manufacturers Association (SMA), the Washington-based trade group representing electric furnace producers. "Driven by currency, scrap prices, electrical rates, labor efficiency and transportation, U.S. costs are lower than in other places in the world. And it is all about cost because of global overcapacity."
The spoiler in this promising exports scenario, of course, is rising hot-rolled coil prices. "If U.S. prices were to stay where they are now-say, $580-you have to export," said Chuck Bradford, industry analyst at Affiliated Research Group, New York. "If the U.S. price goes to $750 it wouldn't make sense. Can you tack on $50 and come in under the foreign price? I am unsure if you can do this today, and less sure if you can in a few months."
Bradford noted that Nucor Corp., for one, has indicated that it has adopted the philosophy of other prominent exporting nations. "In the past, when companies did exporting they would drop out as soon as there was a domestic recovery. Nucor is going to be different this time and stay active," he said.
The trading arm of Charlotte, N.C.-based Nucor recently joined the American Institute for International Steel (AIIS), a trade organization representing importers and exporters, a sign of its commitment to foreign opportunities.
Creating long-term relationships with foreign customers could be the strategy exporters need to embrace. "That is why the Japanese and other countries would stay in the export business even when it was not viable to remain in the relationship," Bradford said. "Domestic exporters need to be committed to foreign markets even if the export price goes against them."
However, while U.S. prices have felt strong upward momentum as of late, this does not guarantee global prices will follow suit. The swings in foreign pricing "usually go in the same direction but not in the same amount," Bradford said.
As to where to look for growth, AIIS president David Phelps said he sees increased activity in steel products aside from the perennially popular sheet. Phelps noted that slab exports are on the rise and higher-valued exports are doing well. "A lot of exports are heavily skewed toward specialty steels and alloy steels," he added.
Additionally, there is room to capitalize on more products, Danjczek said. "Why send scrap out when you can send blooms?," he asked. "The opportunities range from semis to finished steel. But it is not a spot market. We have got to grow country by country and place by place. If you sell on the spot market, you are just a commodity player."
The American Iron and Steel Institute (AISI) agreed that a more global focus is needed. "Economies in other areas of the world are growing faster than in the U.S., as is steel demand in those regions," the Washington-based trade association said.
"There is a general view that the dollar is going to stay weak for a while and we are seeing Bric countries (Brazil, Russia, India and China) and others continue on pretty good long-term growth patterns," Phelps said. "China, (South) Korea and Brazil seem to have very quickly left the recessionary world. We are seeing opportunities in a number of places."
Analysts say that the competitive selling prices could help to bolster exports. "Over the past month, the key raw material costs for steel (iron ore, metallurgical coal and scrap) have all seen strong gains and are likely to push global steel prices higher, limit imports into the U.S. and encourage exports," according to a note by Michael Gambardella, analyst at J.P. Morgan Securities Inc., New York. "U.S. hot(-rolled) steel prices remain among the lowest in the world," he said, comparing the prices to those in Germany, Japan and China.
UBS Securities LLC analyst Timna Tanners is more cautious in her outlook, stating that she sees "limited exports continuing." Tanners also said that some product lines are more attractive. "Exports have been strongest in sheet, plate and beams, with stainless robust recently."
U.S. steel exports have been on the rise after hitting a low in April 2009, according to the International Trade Administration, which noted that while U.S. imports of steel mill products have fluctuated since January 2005, exports have climbed steadily.
The U.S. exported 8,518,980 tonnes of steel in 2005; that total reached 12,225,972 tonnes in 2008, according to the U.S. Commerce Department. Although last year's data is not yet available, exports were averaging 672,918 tonnes a month, or an annualized rate of 8,075,016 tonnes.
Last year's exports are likely to total around 8 million tons, back to the 2003 level, but they are expected to jump to 11 million tons this year due to the ongoing global recovery, according to the American Iron and Steel Institute. "Although exports have fallen in quantity to the 2003 level, they constitute 15 percent of domestic shipments vs. 8 percent in 2003," the AISI said.
The majority of exports continue to be North America Free Trade Agreement (Nafta) shipments. The most recent Commerce Department data indicates that from November 2008 to October 2009, U.S. steel exports totaled 8,214,289 tonnes with some 73 percent of those exports-a little over 6 million tonnes-going to Mexico and Canada.
Other notable export destinations during this same timeframe included China (222,586 tonnes), India (167,769 tonnes), Brazil (144,496 tonnes) and the Dominican Republic (83.290 tonnes), Commerce data show. There are no countries of note in the Commerce data indicating any emerging export trends, but South America remains a growing market due to proximity and favorable freight costs.