By Erik Potter, Post-Tribune staff writer
Even as stimulus spending starts to trickle out into the economy, steel experts warn not to hold your breath that it will directly bump up production at Northwest Indiana's steel mills.
Steel is struggling through a major downturn that's seen production fall off by more than half from year-ago levels, as slackening global demand has led to falling steel prices and plummeting steel profits.
And the kind of steel that President Obama hopes will rebuild the nation's highways and bridges will come from southern steel plants, not our back yard.
Future uncertain
After a whip-lash year for steel in 2008 that saw prices soar, then sink, the question heading into 2009 was whether the battered industry would be able to stop its slide and find its footing.
Three months into the new year, those prospects seem even dimmer than they did at the beginning of the year, as the recession has accelerated and projections of a recovery are pushed further into the future.
Nationwide, businesses have been hemorrhaging jobs in 2009. The unemployment rate has sped higher in Indiana as well, with a revised jobless rate of 7.8 percent in December climbing to 9.4 percent by February. Even with its recent rally, the Dow Jones is still down 1,000 points from where it closed on New Year's Eve.
"(The market is) much, much worse. If you look around the street, the loss estimates are being increased. No one is going to make a profit," said steel analyst Charles Bradford, president of Bradford Research Inc. "U.S. Steel? The consensus forecast for the first quarter was a loss of $1.32 a share. I think it's going to be $2.50, and it could be as much as $3.50."
But not all the news is bad. The U.S. Census Bureau reported Thursday that orders for durable goods were up in February, their first increase in six months. ArcelorMittal USA President and CEO Mike Rippey seized on some of these positive signs in the midst of a sober assessment on the industry that he gave the Lakeshore Chamber of Commerce Wednesday in Hammond. He noted that manufacturing inventories are low enough that an uptick in orders will deplete them in a hurry, sparking more factory and steel orders, and relatively cheap energy costs have been like a nice tax break for the industry.
But no one seems ready quite yet to say that we're on the upside of the recessionary plunge.
The industry-funded American Iron & Steel Institute is sitting out the short-term forecast game, saying "there's no clear indication as to the timing of the recovery," according to Vice President of Communications Nancy Gravatt.
Stimulus, eventually
The institute was a major proponent of the American Reinvestment and Recovery Act, which will direct billions of dollars to road and infrastructure projects. But when that stimulus will kick and if it will be enough to lift the economy remains to be seen.
"It seems pretty common that (economists) are talking that they're not expecting a lot of response from (the stimulus bill) until late this year or even early 2010,"Gravatt said.
The stimulus bill, passed last month, is the centerpiece of President Barack Obama's plan to resuscitate the private sector and put people back to work. Projects funded by stimulus dollars should begin to roll out soon. But the much-touted construction jobs that will be created with stimulus money -- jobs building roads and bridges -- won't be using Northwest Indiana steel.
The mix of products produced at U.S. Steel Corp. in Gary and ArcelorMittal in East Chicago and Burns Harbor are largely lightweight sheet steel that goes into consumer products such as automobiles and appliances, not the heavy guage steel that goes into roads and bridges.
"We don't make rebar; we don't make the heavy-duty ... garter steel" used in bridges, U.S. Steel spokeswoman Erin DiPietro said. "But guard rails and certain road signs? Our steel can be manufactured into those."
United Steelworkers District 7 Director Jim Robinson stressed there will be secondary benefits to Northwest Indiana steel plants from the infrastructure work. If orders for construction equipment go up, those orders will require steel to fill, the kind made here.
"But the bigger effect, and this is a secondary effect, but it's a big one: We get people back to work on those kinds of projects. You get infrastructure construction moving. ... Put people to work, and they will be more likely to buy a car, which is made out of steel. The auto industry is a huge customer of the Northwest Indiana mills."
Who will see the direct benefit right away are the non-union electric mini mills that predominate in the southeast. But even there, the impact won't be huge.
According to Bradford, the annual mini mill steel market is about 70 million tons. The demand expected to be generated by the infrastructure spending in the stimulus will be around 4 million tons.
U.S. Rep. Pete Visclosky, D-Merrillville, the main backer of the "Buy American" provision in the stimulus bill that requires any steel that is purchased with stimulus money be American made, remains upbeat about the prospects of the package. "Buying American steel for economic stimulus projects creates employment opportunities for American steel workers and broadly benefits our economy," Visclosky said in a written statement to the Post-Tribune. "Steel mills in Northwest Indiana will (be making) more steel, employing local steel workers and helping our local economy recover."
But how long those benefits take to work through remains the open question. In the short term, Bradford isn't optimistic.
"The size of the losses that these companies are incurring are going to be huge. When ArcelorMittal or U.S. Steel are operating at 40 percent capacity there's no way you can make money" doing that.