Stainless and Carbon Steel sales: Economic Indicators

This week we highlighted some articles that used specific indicators to forecast future economic growth in both mature and emerging markets. Many times these indicators utilized strong data as indicators to create their forecast while others could be considered a stretch much like linking the Olympics to mature market development. However this information maybe better at evaluating certain segments as opposed to the economy as a whole. If you follow the steel industry, the sales of Carbon and Stainless can provide some insight into industries in fluid transfers and processes and their current appetite for risk.

A company’s willingness to stretch their liquid assets and take on short and long term liabilities for capital investments is an indicator of the confidence they have for economic growth.  Carbon and Stainless sales could be reflective of the current corporate mindset and how much risk they are willing to take.

While specific applications will demand that you must use specifically stainless steel or carbon steel there are many others where an engineer will have a choice where both materials are suitable. Typically in these applications the choice of stainless will provide a longer life expectancy of the capital project, this trade-off is of course increased initial cost. Typically a cost-ratio would be used to show that perhaps the initial cost would be saved and even be more beneficial over the life span of the application.  This during a period of strong economic growth like we saw in the middle of the last decade is evident by stronger volumes of stainless when measured against sales of carbon steel.

Of course as economic times get weak then the inverse holds true, funding for projects are reduced and now the engineer must deal with the initial cost as a driver factor in approvals. Many companies are now concerned with the risk of liquidity and focus on the debt to equity ratio a lot closer. This then drives carbon sales higher against stainless steel products where either product can be utilized in the application.  In discussion with other pipe and fittings producers this seems to be the current situation and may reflect the general outlook most companies have on the overall economy.  In a booming market both metals are booming and in severe times both are weak, but it is the reflection on which of the two is seeing the greater volumes that can be utilized as a strong indicator of where we see the short term economic growth.

This is just an example how utilizing data from one industry can provide insight into the though process of another. This can also have the inverse effect as well from an investment stand point. As stainless steel sales become stagnate then investors could see this as an indicator of the drop in nickel prices.

Source: World Bank

So with utilizing this style of indicator we can see specific industry investment strategies and potential investment opportunities. This information should then be utilized in the forming of your company’s business planning.

Cheers,

Lorne