CHICAGO -- Uncertainty is the name of the game in the U.S. steel industry.
Steel suppliers, makers and purchasers from across the country threw up their collective hands Thursday at the second North American Steel Conference in Chicago, exhausted and confused by the wild ride steel and other commodities have been on in 2008.
With record price spikes in the first part of the year, the cost for some types of steel have since fallen by more than half in the past few months.
Commodities such as coal saw similar gyrations. Now, at the birth of what could be a global recession, steel buyers and sellers are left to wonder whether demand for their product will be the next thing to go into free-fall.
Companies are still announcing strong third-quarter profits, such as U.S. Steel's announcement Tuesday that profits more than tripled, but earnings over the final three months of the year are expected to take a dive. The only question is how long they'll stay at the bottom.
"After looking at the price of scrap (steel) this morning, the only reason I'm here is because I couldn't get the window in my hotel room open," joked William Bremner, president of Behr Iron & Steel, a scrap metal company.
The consensus among the industry leaders follows the general market wisdom that conditions will worsen into early next year. Experts anticipate the industry and overall economy to pick up in the second or third quarter, but expect, overall, a tough 2009.
Analysts are also predicting continued price volatility in commodities, making it hard for firms dependent on those materials to conduct business.
Steve Davenport, corporate manufacturing and finance leader for Cummins Inc., said his company has had to go from negotiating quarterly contracts with its steel components suppliers to monthly contracts, because costs have changed so rapidly.
The change results in higher transaction costs and greater uncertainty in its operations.
The now-declining coal prices are likely to put integrated steel mills in North America, such as ArcelorMittal and U.S. Steel, at a disadvantage in 2009, according CRU Analysis, a metals analysis company.
Coke, made from coal, is a major component. Domestic coal contracts typically lag behind international contracts, which means when prices are falling, international companies will be first to realize those savings.
Long-term outlooks, however, remain bullish.
As economies in China, Brazil, India and Russia continue to grow and urbanize, demand for steel in construction and durable goods look to keep the steel market trending upward.