Repairing steel demand

by James Moss on August 16, 2010

in Articles

The four worst post-war (WWII) declines in US steel demand occurred in 1958, 1975, 1982 and last year, 2009. In the recent US Steel Q2 conference call, US Steel CEO John Surma wisely reflected, in the context of how much capacity to keep running, that some of the recent steel demand destruction could be permanent.

We think there is a pretty good chance that the level of consumption, which was implied by what the shipments were with the industry back in the middle part of the year was unsustainably low, probably moving back into something that’s more aligned with what real end use demand is. We don’t really have a good idea what that is, until we have a little bit more time to assess it. I don’t think for the long term it’s likely that the U.S. Steel consumption per capita will be one half of what it’s been for the last 20 years. That seems unlikely, but it’s possible. From: SeekingAlpha

He’s right. Dramatic collapses seldom lead to half the per capita consumption that prevailed before the collapse, but they do lead to longer term demand damage that seems hard to repair. In the three prior notable crises, demand per capita in the 5 years prior to the year of collapse was 17%, 8% and 19% higher than it was in the 5 years after the critical year. On average, that means there was a 15% decline in per capita consumption in the 5 years following a demand crisis.


And it’s hard to come back. After 1958, it took 6 years to return to the per capita consumption of 1957. We never got back to the levels achieved just prior to 1975. And it took 15 years to recover the specific level of 1981, but never the 5-year average prior to 1982.

What might happen post-2009? A 15% decline in overall demand would mean an average annual loss of about 15MT (short) between 2010 and 2014 unless the reordering of the global economy causes a different trajectory for the US steel economy. In other words, deciding on appropriate capacity levels is going to be a very tough decision.