US structural metal product manufacturing industry to witness rebound

LOS ANGELES (Scrap Monster):After going through  four crisis-filled years from 2008 to 2012, the structural metal product manufacturing industry whose forturnes are tied to the residential and commercial construction markets is set to witness growth, according to a new report from IBISWorld.

“Structural Metal Product Manufacturing” report  points out that positive trends have emerged in the industry and exports will supply about 5.3% of revenue in 2012 and industry revenue is set to grow over the five years to 2017.

In 2007, the bursting housing bubble had minimal impact on the industry, as revenue continued to climb through the year; however, the ensuing subprime and credit crises muted demand by 2008. In 2009, industrial activity came to a standstill, causing revenue to fall a staggering 19.4%. Furthermore, residential construction has been cut in half since 2006, and the value of private non-residential construction is projected to decline at an average annual rate of 5.1% over the five years to 2012. As a result, industry revenue is estimated to fall at an annualized rate of 3.2% over the same period. US construction activity has remained weak through 2012, but industry revenue will manage 4.1% growth to $37.4 billion over the year due to relatively strong demand from foreign countries and some recovery in US housing markets. 

From 2007 through 2008, rising imports and aggressive growth in key input prices, such as steel and aluminum, depressed profit margins. IBISWorld industry analyst Brian Bueno says, “Despite this factor, a major shift occurred over recent years: the industry's trade deficit slimmed to a nearly nonexistent margin as export values neared that of imports. A weak dollar and strong international demand for steel have supported export growth and limited imports.”

To reduce costs and gain a larger market share, players such as Nucor Corporation and Commercial Metals Co. have been expanding through acquisitions, buying smaller companies and effectively increasing their economies of scale to allow for potentially higher profit. As a result, total industry enterprises have declined on average 0.9% per year since 2007 to 5,182 in 2012.

The Structural Metal Product Manufacturing industry has a low level of concentration and consists mainly of small, local operators. Market share concentration has increased over the five years to 2012 due to mergers and acquisitions activity and smaller players being forced out of the industry during the recession, says Bueno.

Downstream demand sectors, primarily residential and commercial construction, will spearhead the recovery; housing starts are expected to increase. Infrastructure construction will play a large role in the recovery as well, but growth from this market will slow as government spending cuts limit funds. Over the same period, growth in industry size will be limited as larger firms continue to expand through mergers and acquisitions, with the total number of enterprises decreasing.