General Dynamics and Allegheny Ludlum Illustrate the Strength of the Specialist Steel Market

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Ferrous Metals, Supply & Demand

Consumption of steel in the defense sector at least has been holding up well if figures just released for General Dynamics are anything to go by. The defense and aerospace group is reported in the Washington Post as posting profits for the period ended July 5 down just 3.6%, to $618 million, from $641 million a year earlier. Revenue for the quarter was up nearly 11 percent, to $8.1 billion. The fall can be largely attributed to a downturn at Gulfstream its business jet business where the firm has cut 1200 jobs. Revenue at the defense divisions however is robustly up. As a major manufacturer of tanks, submarines, armored vehicles and key provider of services to the government, its product range has clearly been considered essential.

Interestingly although profits at specialist steel suppliers like Allegheny Ludlum are dramatically down from last year, the January-March period net income was $5.9 million, compared to the first quarter 2008 of $142 million according to Trading Markets, the important issue is profits were made. Although steel producers the world over plunged into the red, specialists like Allegheny managed to maintain volumes and margins with sales into the defense and energy sectors such as oil and gas, nuclear, etc. Indeed it has been a point of contention among consumers in these sectors that they have not seen the level of savings in metals prices that they had expected when world steel and metals markets plunged last year. Part of the reason is buyers are often on longer term contracts but clearly another issue is that producers’ sales have not been hit to the same extent as commercial grades.

For the time being at least specialist steel producers have the upper hand in terms of commanding prices and by the nature of the industries they serve are likely to lead the steel sector out of the recession as the more commodity end of the market gradually sees demand pick up.

–Stuart Burns

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