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Uneasy optimism in the metals market: MSCI Chairman Michael Petersen discusses the state of the industry, and the institute, on the eve of the trade group's annual meeting May 2-4 in San Francisco.

Article Excerpt
Using words like "edgy," "unprecedented" and "challenging," MSCI Chairman Michael Petersen nonetheless paints a generally positive picture for the metals market in the next 12 months.

He expects a good year for the U.S. economy and thus the metals sector, with a weakening dollar creating new opportunity for U.S. manufacturing. "But there are so many changes going on right now, it's hard to be comfortable," he adds.

Most MSCI members report rising revenues, though tight supplies and product availability are ongoing concerns, says Petersen, who is president of Petersen Aluminum Corp., Elk Grove Village, Ill.

He notes that conditions in the steel and aluminum markets are very similar. The price of steel has been driven sharply higher due to a shortage of coke, scrap exports to China and other parts of the world, high energy costs and the value of the dollar relative to other currencies. The price of aluminum is affected by the same factors, except for a shortage of alumina rather than coking coal.

One major difference is the fact that aluminum is traded on the London Metal Exchange, so changes in the market price are easier to track, helping service centers and their customers adjust and readjust their purchasing strategy.

Inventories are tight at the distributor and end-use levels, as producers of both steel and aluminum struggle to meet demand. "We have seen a lot of customers place panic orders in advance of price increases," Petersen says. "it is hard to get a sense of what is real demand backed up by new business."

With some products--notably hot-rolled steel-on allocation, service centers are struggling to source all the material they need. In times like these, supplier relationships are critical, Petersen says.

"We are all trying to work our relationships...