Home | Business News | Browse by Publication | M | Metal Center News

In steel we trust, but ... MCN's optimism index shows sentiment--and profits--may have peaked.

Article Excerpt
Though nearly all service center operations were profitable in 2004, and more than nine out of 10 service center executives are optimistic about the coming year, the majority expect profit growth to flatten or decline along with steel prices in 2005.

Data from the latest MCN Service Center Outlook Survey reveal a polarization of viewpoints between believers who expect the boom times to continue and skeptics who doubt the market can sustain such historically high price levels for much longer.

The majority consensus on profitability is a pessimistic one. About 36 percent of respondents expect service center profits to decline by a whopping 25 percent this year, while 24 percent expect profit levels to remain about the same. The other 40 percent, to the contrary, forecast that profitability will increase by an average of nearly 18 percent. Averaging all the respondents' forecasts, MCN projects a 1 percent decline overall in industry profitability this year.

To quantify industry sentiment, MCN asked respondents to rank their feelings on a scale from 1 to 6. Those indicating 1,2 or 3 fell on the pessimistic half of the scale; 4, 5 and 6 on the optimistic half. Overall, 92 percent characterized themselves as very or somewhat optimistic, up from 89 percent last year and exceeding the 91 percent peak in year 2000. The industry's current optimism level is the highest since MCN began gathering this data in fall 1999.

Nearly 19 percent of respondents ranked themselves at the very top of the 6-point scale vs. 16 percent last year and 12 percent the year before. "All indications look promising for our industry," wrote one respondent. "We will all benefit as the economy continues to improve. Consolidation in the industry will assist in stabilizing price and availability," wrote another.

Averaging all the responses reveals an MCN Optimism Index of 4.8, up from 4.6 last year. The index has advanced by 20 percent since 2002, tracking well with the rebounding economy. Clearly, despite the likelihood that record profitability will moderate, most industry executives are bullish on prospects for the coming year.

Quantifying industry "optimism" helps to track the trend in service center executives' attitudes, which affect the decisions they make regarding expansion and contraction, raising or lowering inventory levels, increasing or decreasing manpower, making capital investments, etc. Not surprisingly, their forecasts for demand, sales, hiring and capital spending all point to another very strong year for metals distribution.

PRICING

At the heart of the service center industry's current prosperity is the unusually high price of metals, especially steel. With demand surging, both in North America and overseas, and raw materials such as scrap and coke in tight supply, steel prices have escalated to record levels in record time. Such dramatic and unprecedented increases caught the industry by surprise and left many steel products in...

View this article FREE - Now for a Limited Time, try Goliath Business News
Free for 3 Days!