As revenue consistently declines, many operators will be acquired or exit the industry.
New York, NY (PRWEB) February 03, 2014
The Steel Rolling and Drawing Industry, which produces plates, sheets, strips, bars and wire from purchased steel, was hit hard by the global economic crisis when demand for steel dramatically declined. Industry revenue remains below prerecession levels after plummeting in 2009, although revenue has grown slowly at an annualized rate in 2014. Steel rolling and drawing mills have also had to compete with primary steel producers in the Iron and Steel Manufacturing industry (IBISWorld report 33111CA). Operators in this industry include integrated steel mills, which have lower operating costs due to their ability to internally source steel, thus eliminating the purchase cost of their main input. As primary steel producers continue to expand operations to benefit from economies of scale, they have increasingly cut out rolling and drawing mills by directly offering rolled and drawn steel products to metal wholesalers and manufacturers.
Heightened competition, particularly from US manufacturers and contractors, during a period of depressed demand has devastated domestic industry operators. Since the purchase of steel constitutes the largest cost for industry operators, fluctuations in the price of this input directly impact profit margins. In the five years to 2014, the industry was only profitable when the price of steel collapsed in 2009, causing input costs to fall faster than selling prices for rolled and drawn steel products. However, the industry has posted modest losses since, in line with volatile steel prices. As a result, revenue has fallen since 2012 and is forecast to decrease further in 2014.
The Steel Rolling and Drawing industry has a low level of industry concentration, with the largest operator generating a significant share of industry revenue. The Steel Rolling and Drawing industry is not expected to recover during the next five years. In the five years to 2019, according to IBISWorld Industry Analyst Leah Goddard, “operators will continue to be squeezed as integrated steel mills and metal wholesalers increasingly take on functions previously performed by steel rolling and drawing mills.” Over the same period, “domestic and international demand for steel will result in higher prices, further raising operators' input costs,” says Goddard. As profit margins continue to contract and revenue consistently declines, many operators will be acquired by integrated steel mills or exit the industry.