April 1, 2009
Signs of life seen in steel

HAMMOND — Steel production currently is the lowest it's been since the Great Depression, yet there are still enough signs of life in the economy that indicate the United States will survive "The Great Recession."

ArcelorMittal President and CEO Mike Rippey pulled no punches with Lakeshore Chamber of Commerce attendees during their monthly luncheon Wednesday: The steel industry is operating at 40 percent capacity, and ArcelorMittal has laid off many employees with no firm date as to when they can come back. Last year, steel was running at 91 percent capacity until September.

At the same time, manufacturing capacity is around 67.4 percent at this point; the housing market has nearly a year of inventory it would need to sell before starting to build again; and the auto industry has at least 100 days of inventory on its hands.

While those statistics might sound dire at face value, they're not, at least where the various inventories are concerned, according to Rippey. For example, reserve steel inventories are lower than they've been, but once they're depleted, people will have to come and make more.

"There might be 100 days of inventory in auto showrooms, but there's only 2.2 million units out there; last year, there was 2.8 million. The sales base is low," he said. "The supply chains have been leaned up like I've never seen before."

As well, lower energy costs are already acting like tax credits, and the dollar is weakening again, which is good for manufacturing. The Fed keeping interest rates low is also the "absolute correct thing to do" right now, because people aren't likely to make the same mistakes again.

"We held the rates low in 2001, but perhaps by doing so we exacerbated the bubble since prices ran like crazy in 2003-2004," Rippey said.

When Rippey asked groups to which he spoke back in December whether they were in the market for big-ticket items like cars or appliances, no one raised their hands, he said. Wednesday, a smattering did, and for that he's extremely hopeful.

"I don't think it's anyone's desire to not complete the American dream. We need liquidity, and we need consumer confidence," he said. "Don't be afraid to buy that car until the crisis abates, or nothing will be restored."

Rippey was asked what the effect of global warming will have on the industry. He said the United States has reduced its carbon output 29 percent overall but balked at the cap and trade legislation being considered since it can work only if every country globally buys into it.

Source: Gary Post Tribune, March 26, 2009

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