When it comes to economic indicators, perhaps the most important category for the steel industry specifically is construction, and several sources over the past week have given us mixed signals as to what 2011 will really look like when it comes to domestic construction demand. Based on reports and surveys from the United States Geological Survey (USGS) and Bloomberg, let’s try to see if a big picture emerges.
On the more depressing side of the construction equation, the USGS recently released a report showing the production trends of several mineral commodities from 2009 to 2010. Gypsum, cement, sand and gravel, crushed stone and zinc were all down by double digits in Q4 2010 (from Q3 2010): construction-use sand and gravel production, for example, dropped 25 percent.
The only commodity that fared well: iron ore. Having only risen 2 percent from Q3 to Q4 in 2010, total production of iron ore in 2010 was up a remarkable 87 percent from 2009 totals. According to the USGS, this had as much to do with mine shutdowns and inventory contraction in 2009 as it did with slightly improved economic conditions the following year.
This general assessment of an “improving economy seems to have spilled into the beginning of 2011. Housing starts were up in January by 15 percent, or a 596,000 annual rate, according to Commerce Department reports. But that positive statistic is misleading, because the jump is attributed to multifamily homes, and not to single-family unit starts, which indeed dropped. Overall, then, the housing market is still anemic.
“Housing activity is going to remain at depressed levels this year, Ellen Zentner, a senior macro economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, told Bloomberg. “We’ve got home prices that have taken another leg down and will probably stay down through midyear.
Another troubling sign is the decline in building permits, which “dropped 10 percent to a 562,000 annual pace in January, according to the article. Permits were up 15 percent in December, but that was another false indicator of growth, since builders applied before the end of the year to avoid new building codes going into effect.
In a separate Businessweek report, a survey of indicators showed that wholesale costs were up for the seventh consecutive month, capacity utilization was down, and mining production was down but that manufacturing overall was up 0.3 percent, and the ISM’s factory index was reported at its highest since mid-2004. This all appears to be good news for firms like Parker Hannifin, a Cleveland-based manufacturer, which makes construction equipment (among much else) and whose order books are evidently regarded as a litmus test for the health of the overall construction sector.
“We’re pretty bullish as far as what the future order pattern is, Thomas Williams, executive vice president and operating officer, was quoted as saying on a conference call Feb. 9. “Our backlog is building, he said, and “we’ve got ramp-up in volume.
The truth is, no one really knows where the housing market will end up this year. Much of domestic production can be attributed to growing international demand, and housing starts tell a partial picture current unemployment rates may tell the most important story of future economic conditions, and so far, those are still not looking good.
MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event: