NO rust is growing on the steel industry this year.
Steel companies report order books are chockablock and backlogs abound. Many mills are running at more than 100 percent capacity but are still unable to meet demand. Some steel customers are only getting partial orders filled as producers ration their precious product.
''Business is good,'' says Charles Bradford, a steel analyst with UBS Securities in New York.
The steel industry -- having one of its best years -- reflects the good health of the United States economy. Major steel customers, such as the auto and appliance industries, have yet to see a substantial sales downturn. In addition, warm weather this winter meant the construction industry could push ahead with road projects and commercial buildings.
Consequently, for the last 12 months steel has been in short supply and prices have tracked upward for 26 consecutive months, according to a survey last month by the National Association of Purchasing Managers in Chicago. Last week, US Steel Group, part of Pittsburgh-based USX Corporation, hiked prices for steel sheets 3.5 percent.
Last year, the industry operated at 90.5 percent of capacity, the American Iron and Steel Institute in Washington (AISI) reports.
To meet customer demand, the steel industry imports 25 percent of the steel it sells in the US. It is semifinished steel, so must be reheated and rolled at US mills.
Of course even within steel bull markets, there are cycles. On Monday, for example, Nucor Corporation, based in Charlotte, N.C., announced it was lowering prices on hot rolled steel by $20 per ton. The steel is predominately used by the machinery and construction industries.
''Orders were soft,'' says John Correnti, president of Nucor, which operates electric blast furnaces, known as mini-mills, that use scrap metal as raw material.
One of the reasons for the softer prices, Mr. Correnti says, is the recently announced price hikes. Service centers, which warehouse steel to sell to small to medium-sized customers, have loaded up with inventory to beat the price hikes. To entice customers to continue buying, the steel companies are offering discounts. ''We just watch our order book and backlog and when it falls off we lower prices,'' Correnti says.
Some steel analysts, in fact, are wondering if the latest round of announced price hikes to take effect on July 2 will hold up. As the economy cools, hot rolled steel prices are vulnerable, says John Jacobs, a steel industry consultant with the WEFA Group, economic consulting firm in Bala-Cynwyd, Pa. However, he anticipates price increases will hold up for cold rolled steel, which is used in the automotive and appliance industry. ''It probably has one more spurt left,'' he says.
Analysts expect the dynamics of the industry to change as capacity increases. The AISI estimates the industry will add 4 million tons this year. Next year, the industry expects to add even more new mills. ''There is a whole slew of capacity coming on stream early next year,'' says Mr. Bradford, who adds, ''Clearly the industry is building too much capacity.''
The new capacity is likely to come at a time when the US economy is softening. However, analysts expect the downturn in demand to effect imported steel the most since the US steel is less expensive (after transportation) and often better quality.
But if US purchases slow, that isn't likely to hurt overseas steel producers. Indeed, strong economic growth abroad may suck up extra capacity worldwide.
Steel analyst J. Clarence Morrison of Prudential Securities recently calculated that imports will drop to 22 million tons in 1995 from 30 million tons in 1994 because of a pickup in demand in Europe and Asia. As the world economy begins to regain its vigor, Mr. Morrison projects a tightening world supply by 1996 or 1997.
In Japan, the Kobe earthquake temporarily knocked out 5 million tons of production at Kobe Steel. ''More important, our damage estimate is that the nation will need another 15 million to 20 million metric tons to rebuild the infrastructure, which may take at least two years,'' Morrison says. This would represent a 2 percent to 2.7 percent increase in world steel demand.