Niche Copper and Steel-Sourcing Industries Keeping US Metals Demand Afloat?

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On the heels of MetalMiner’s coverage of the shale oil and shale gas markets and how the oil and gas industry is almost exclusively keeping demand for steel products up in the midst of anemic construction numbers comes a story looking into how niche industries, such as ammunition manufacture, are doing their part as well. (MetalMiner has also covered the gun industry as it relates to metals demand.)

A Reuters piece last week took a look at oil and gas, railroad transport and ammunition, among others, and how they play a role in the current demand picture. On the face of things, it seems like these industries are providing a rosy picture.

For example, a Texas-based fabrication firm, Willbanks Metals Inc., reported that the oil and gas industry now accounts for 35 to 40 percent of Willbanks’ business, “up from 15 to 20 percent before the decline in the U.S. construction sector. Another company, Olin Brass in Kentucky, has a robust commercial ammunition business supplying the US military, and their sales of copper strip for military ordinance has in part helped them grow 10 percent year-on-year. Also, “ship and boat construction and railroad equipment components in the U.S. industrial output index were up 12 to 14 percent in September, outpacing most other segments.

Reuters also quoted several managers, directors and analysts as saying that specifically copper and copper alloy demand in the US should remain solid due to substitution for those metals having run its course.

But a lot of these optimistic outlooks, if not overblown, should at least be taken with a grain of salt. The Obama administration’s push to drastically reduce defense spending could significantly reduce contractors’ orders, as a pullback in US forces overseas could decrease metals demand in that sector by 2 to 4 percent that year, according to the article. Reuters also quotes Charles Bradford, metals analyst at Bradford Research Group in New York, as saying he expects growth in U.S. steel use to be “near zero percent for 2011 and 2012.

Also, China’s role in the copper market (40 percent of global consumption) and steel market (their domestic production down recently) will determine a lot of what those prices are doing. If there’s a falloff in Chinese consumption, as expected due to inflation, a potential housing bubble and policy tightening measures, further price falls may be inevitable.

The hot spots of oil/gas and the auto/truck sectors may indeed be the industries that are keeping the US going right now and Brian Beaulieu, a leading economic forecaster, tends to agree, lauding Big Auto while not foreseeing the US housing construction market coming back any time soon. But going forth and being aggressive in growing output and exports for mid-size companies like Willbanks Metals, Accuride, National Bronze and Metals and others is a better proposition than sitting back on one’s laurels, being bearish. Order books, no matter how slowly, seem to be looking healthier, and 2012 will almost certainly be better than the last two years.

–Taras Berezowsky

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