Ooh, sorry for using the “R” word. We were also one of the first to write about the bum economic stimulus package that has now made its way to the Senate. So rather than dwell on the negative, we thought it might be interesting to see how this recession stacks up against others and more important, which industry sectors will lead the recovery. Next, we’ll take a twist on the story and look at it from a metals standpoint.
According to The McKinsey Quarterly “executives in an industry that lags behind the economy for example, may imagine that they can avoid a downturn because at first the industry doesn’t slow down when the economy does.” As a consultant, we see that with clients all the time. 2008 was not a good year for automotive suppliers and yet mining companies buying grinding media or cable manufacturers buying steel, stainless and aluminum didn’t see a drop in demand until much later in the year. There is always this “maybe my sector will be spared,” feeling when a particular industry does not see a slowdown until later. The McKinsey analysis took into consideration how sectors performed over the last four recessions as well as “total returns to shareholders.” And perhaps the most interesting finding is not so interesting – so far this recession looks a lot like all of the others. In each of the previous four, there was a “core shock”, in this case the sub-prime mess. In previous recessions, energy was the last to be hit whereas consumer staples and health care, at least in the last two recessions fared okay.
Unfortunately for those in the metals industry, materials and industrials had the biggest drops. And, it took many firms, within those industries, ten years to recover. So where does that lead those in the metals industries? Not surprisingly, automotive, large white goods and heavy industrial manufacturers saw demand drop first. Providers of telecommunications equipment are seeing slowdowns now whereas our friends in the consumer staples industries (think canned goods) may not have seen any slowdown (and they might not see one at all). Energy is an interesting sector because it is a lagging sector. However, much has been discussed about the economic stimulus package and its effects on this sector, though we don’t feel it will be big enough to have any material impact. However, many in the process industries still need to conduct required maintenance. That maintenance spend can easily approach the millions of dollars. And I’ll bet with this market, those sourcing professionals are keeping a much closer eye on metals prices. And our advice there? If you can hold off on those purchases for a little longer, you just might be able to take advantage of the price decreases in metals used for exchangers, tanks, vessels, valves, fittings etc. But the high prices from mid-2008 will need to be worked through the system first.
But no matter where you play from an end-user industry perspective, your challenge is to not just meet the market, but rather, beat it!