The current economic downturn has wreaked significant havoc on the global economy and on the steel industry. Not surprisingly we are all wondering “How long will this recession last and how bad will it get?” Of course, no one knows. But there are some historical precedents and while history may not provide a clear answer, it may help us bracket the possible outcomes and put the current crisis in context.
Two economists, Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University, have studied the aftermath of previous financial crises and have measured the depth and duration of their economic impact. Here’s a direct link to the paper, which was presented at the American Economic Association meeting in January 2009.
The economists looked at five variables to measure the recessionary impact of financial crises – the declines in housing prices, equity prices, and real GDP per capita, along with the increases in unemployment and government debt. For four of the five variables the authors also measured the duration of the downturn.
The data presented in the paper paint a bleak picture. Housing prices on average declined for 6 years and fell by a total of 35%. Equity prices fell on average by 56% over a period of 3.4 years. The average decline in real GDP per capita was 9.3% but “only” lasted for 1.9 years. The unemployment rate increased by 7 percentage points over 4.8 years and government debt rose by 86%.
The declines in housing and equity prices in the US are now approaching the averages cited above and we have been in recession for over a year now. This might offer some hope that we are approaching the bottom of the crisis. I certainly hope so. But as the authors point out, the previous financial crises were more regional in nature. This is the first truly global crisis. So while history may provide some guidance we are, just to add to the uncertainty, in uncharted waters.
Gerdau Ameristeel and Gerdau SA released 2008 financial results on February 19. Gerdau Ameristeel’s results can be found here and Gerdau SA’s here.
Both companies’ operating income and EBITDA per ton fell in Q4 relative to Q3. Gerdau SA’s EBITDA per ton remained solidly positive while Gerdau Ameristeel’s EBITDA per ton fell into negative territory.
Check out the Nerds of Steel earnings spreadsheet to see these results and those of other steel companies.
Based on reported US import licenses, long products imports in January rose 57% to 280,000 short tons compared to actual December imports of 178,000 tons.
The January increase was mainly due to growth in rebar and sections licenses. Rebar imports grew from December actual levels of 14,000 tons to January licenses of 65,000 tons. Sections imports grew from December actuals of 28,000 tons to historically high January licenses of 86,000 tons, mainly due to licenses for Korea, Taiwan and Germany.
February licenses reported up to 17 February reached only 69,000 tons, however, which should mean that full-month February imports will be low.
Crude steel production in China reversed its decline and climbed 7% to reach 37.8 million metric tonnes in December. December finished steel exports also grew by the same percentage to 3.2 million tonnes.
Crude steel production was 9% below its level in December 2007 and exports were 34% lower.
Full-year 2008 crude production rose by 2% over 2007 to 498 million tonnes while exports declined by 5% to 59 millions tonnes. Full-year finished steel production and consumption both grew by 3%.
ArcelorMittal announced 2008 financial results today. Shipments in Q4 were 18.7 million net tons, down 33% from Q3. EBITDA per net ton also fell dramatically, from $304 in Q3 to $149 in Q4.
The company expects Q1 2009 shipments of 17.6 to 18.7 million net tons, off only modestly from Q4 2008’s depressed level. But EBITDA is expected to continue dropping, from $2.8 billion in Q4 to $1.0 billion in Q1 2009. If shipments come in at the mid-point of the companies forecast, say 18 million net tons, Q1 2009 EBITDA per ton will fall to $55.
EBITDA per ton for ArcelorMittal and other companies can be found in the Nerds of Steel earnings spreadsheet.
