2007 -- A Good Year For Steel & Capital Goods

Both the steel and capital goods industries should have a favorable 2007 according to trade credit insurance company, Euler Hermes ACI. "The industry [capital good sector] is largely impacted by two factors which influence capital spending: the level and rate of change in industrial production and non-residential construction activity," said Patrick Lane, Euler Hermes ACI.

Earlier this year, manufacturing capacity utilization was above 80%, which typically prompts companies to make capital spending commitments for expansion Lane said. While several challenges to the industry remain, such as the shift of manufacturing to China and the focus on increased manufacturing efficiency, the outlook for the sector is fairly positive, he said.

"In the late 1990s and early 2000s, steel prices were at anemic levels," said Tony Clary, Euler Hermes ACI. "Large producers with access to capital markets pursued an acquisition strategy to take advantage of the consolidation caused by a large number of bankruptcies, 36 in all, that took place during that period."

Over the past two years, steel prices have increased substantially due to strong consumption in China, the strength of the U.S. economy, and the consolidation providing more buying power and price stability. The sector is predicted to maintain its current levels and shows a fairly positive outlook because of strong demand and discipline by the market leaders, said Clary.


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