INSIGHT: US steel production begins upturn

By Bill Bowen

HOUSTON (ICIS)–Steel production is a US hallmark: the legacy of Andrew Carnegie’s empire built by scooping up smaller mills and combining their operations, an emblem of US industrial might during two world wars, a backbone of the US auto industry and the subject of keen debate during the recent presidential election.

It also consumes one-fifth to one-third of US hydrochloric acid production to prepare steel surfaces for finer applications, such as car bodies, home appliances and a thousand other uses.

So it got attention when beginning in November, after two years of a sharp domestic production declines, US steel output began to inch higher. Indeed, for the first weeks of 2017, US steel production is up 5.8% compared with the year-ago period, according to figures from the American Iron and Steel Institute (AISI).

“Demand appears to be pushing up,” said Tim Gill, AISI chief economist.

Though US gross domestic product (GDP), the macro measure of economic activity ticked lower in the fourth quarter, “it was a more positive report in terms of consumable goods,” Gill added, citing auto and home appliance production.

“2016 saw the economy improve as the year progressed.”

It was also the year that the US imposed anti-dumping duties against particular Chinese steel makers, providing some protection to US domestic producers.

While you might not know it from the recent election debates, where cheap steel from China was singled out to blame for US steel’s woes, steel imports ticked lower during the election year.

Raw iron and steel imports totaled 9.48m tons in 2016, down 6.7% from the 10.17m tons imported in 2015, according to figures released this week by the US Bureau of Economic Analysis, a division of the Census.

But imports have not been the only challenge to US steel production.

One of steel’s largest demand sectors, automotive manufacturing, has moved decisively toward lighter-weight materials, especially aluminium and polycarbonate, to meet US requirements for minimum fuel mileage requirements against consumer demand for vehicle performance.

Steel accounts for about 60% of a typical vehicle’s weight, according to steel industry figures. The Ford F-150’s total weight is 25% aluminium, displacing an even greater proportion of steel to make that inroad. In the period 2012 to 2015 the average weight of aluminium per vehicle grew by a little more than 44 lbs and likely displacing much more weight in steel, according to data from the World Steel Association.

Ford accelerated its aluminium consumption in 2015, moving to expand use of the lightweight metal that it uses in each vechicle produced of the popular Ford F-150 pickup, the best-selling vehicle series in the United States for the past 35 years.

For their part, steel makers are working to produce their own lightweight materials to maintain its share of that business.

Some in the industry see a brighter outlook in the current administration’s proposal for infrastructure spending and the speedy approval of pipeline projects, which consume huge amounts of steel.

That particularly applies to the president’s admonition that the projects use US-produced steel, prompting a hearty thank you from the US industry’s leaders.

“Taken together, building these pipelines, ensuring key markets for domestic steel and pipe products, and lowering the burdens to manufacturing in the US, will help ensure that our industry remains highly productive and internationally competitive,” said Thomas Gibson, president of the AISI.

Greater steel production would also be welcomed by the US producers of hydrochloric acid (HCl) who have seen prices and demand collapse along with the fall in oil prices. HCl had seen tremendous growth in oil-patch demand where the acid is used to dissolve limestone debris ahead of the hydraulic fracturing process that cracks open shale deposits to release natural gas or oil, depending on the region.

But that business, in 2014 estimated to consume upwards of 35% of US HCl production, fell off sharply in 2015-2016 and is just starting to recover: by some accounts doubling over the past eight months.

Oilfield activity has moved higher with some 729 active rigs in US fields, according to the most recent data from Baker Hughes oil tool and technology company. That is up from the bottom reached in May 2016 at 404 rigs, according to the Baker Hughes Rig Count.

Still solid growth in the steel production would also make waves among US acid producers.

“The demand (for acid) from steel just sort of rocks along,” a major US producer said earlier this year. “You sort of take it for granted because it doesn’t rise or fall as fast.”