Thursday, January 12, 2012

Steel: Numbers are Sometimes Deceptive

In the context of another project, I charted economic census data for the Iron and Steel industry (NAICS 331111). Hello! I said, looking at the numbers. I had charted a series on Value of Shipments for the 1997-2010 period. What these numbers showed was a gradual decline of the industry early in the period followed by a dramatic upturn beginning in 2003. But everything else I read about the industry seemed to indicate quite the opposite. No one in the industry was trumpeting the glories of a renascent steel industry. I don’t like growth trends unless I can explain them, so I went to work. What I understood before I started were a few big facts about this industry:
  • It is maturing, shrinking, and consolidating in the West, thus in the developed world.
  • It is booming in Asia, especially in China and India. China can’t get enough steel.
  • Prices have been trending up, in part because of fierce Chinese demand, in part because of the rising costs of coke, the stuff you need to render iron ore into pig iron.
My efforts to explain that rise in U.S. steel performance eventually yielded this interesting graphic:

What I am showing here, using U.S. Geological Survey data (link), is that steel production in the United States, measured in metric tons, has been trending down, that the price of steel has been trending sharply up, and that domestic shipments have been echoing the price increase much more than reflecting the gradual erosion of physical output.

I’m showing production and price data as an index to keep the graphic readable. Domestic shipments are rendered in billions of dollars. The first two items come from the USGS and the series ends in 2009;  the shipment data come from the U.S. Bureau of the Census.

While I was engaged in this, I also discovered that U.S. exports of steel, while smaller than imports, have been rising much more rapidly than production for domestic use (both measured in dollars). Rising world prices affect domestic prices even when 83 percent of an industry’s shipments (as was the case here in 2010) are consumed locally—and the price increases are driven by Chinese demand. It’s a global market, isn’t it?

In most industries value of shipments data can be taken at face value. When a basic industry moves overseas for all practical purposes, and when other markets have the hammer hand, one has to be careful in assessing rising curves.

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