Steel service centers and other processors are finding surprising opportunities during the Covid-19 pandemic, and 2021 demand appears poised to exceed expectations for metals consumption, panelists said at Fastmarkets' 2020 Steel Success Strategies Online conference this week.
"We are very bullish," he said during the "Steel Processors and Service Providers" panel on Tuesday October 27.
"The steel industry is healthy and we think there will be a resurgence in manufacturing in 2021. Housing is strong, autos are recovering, people are buying appliances and people are continuing to invest in their homes," Leebow added.
Barry Zekelman, executive chairman and chief executive officer of steel tube producer Zekelman Industries, said demand in 2020 has already surged for his products in applications including fencing, recreation vehicles and the construction of new distribution centers.
"We found areas this year that just surprised the heck out of us in terms of the robustness of the business," according to Zekelman, who is confident enough to invest heavily in capital expenditures.
Zekelman Industries' capital expenditures are normally about $80 million annually. Combining last fiscal year with the current fiscal year, the company will have devoted $430 million to capital expenditures over that period, he said.
As for what lies ahead, Zekelman said his Z Modular division, which pre-fabricates stackable housing units out of structural tubing and other steel, is experiencing a surge in orders. Z Modular is producing 16,000 square feet per week, and Zekelman said output could rise to 60,000 square feet within the next six to eight months. The only obstacle has been in enticing enough labor to work in the plants during a time when pandemic-related unemployment aid has incentivized people to stay home.
"I can't keep up, and I can't hire people," he said.
The weakest sector for steel in 2020 has been oil and gas, but a rebound could finally be in sight for that segment, Alexander Ulanov, a partner and basic-materials specialist at McKinsey & Co, said during the panel. If true, demand for oil country tubular goods (OCTG) could be in the same position with other end markets in enjoying growth in 2021.
"Even energy, to our absolute surprise," he said. "Even OCTG upstream we think will start to grow again next year, which is a year earlier than we expected."
Ulanov presented a research report indicating that service centers continue to enhance their distribution businesses with an increasing number of value-added services. That is adding to their profit margins, but it also elevates customer expectations.
The highest-margin operation for service centers to tackle is primary assembly, with an average 21% mark-up, compared with cutting or slitting at just 8% mark-up, he said.
Edward Lehner, president and chief executive officer of Ryerson, said one of the next guideposts to watch is whatever climate-change agreements are on the way globally.
Depending how carbon is priced, the US could prove to be the world's most cost-effective manufacturing country, at least among the developed nations, he said.