Steel, capital goods continue to show improvement

According to an industry sector study issued by global trade credit insurer Euler Hermes ACI, Owings Mills, Md., several materials industry sectors show promising outlooks despite an expected U.S. economic slowdown in 2007.

The U.S. Industry Outlook report provides an overview of a dozen industry sectors and their respective risk grades as determined by Euler's risk underwriting department. The report touted improving conditions for capital goods and steel.

According to Patrick Lane, vice president of risk at Euler, the capital goods sector was weak but improving over the past several years. The industry is impacted by two factors: the level and rate of change in industrial production and nonresidential construction activity.

Early this year manufacturing capacity utilization was above 80 percent, which usually prompts companies to make capital spending commitments for expansion. He also added that while several challenges remain, such as the shift of manufacturing to China and the focus on increased manufacturing efficiency, the outlook for the sector is fairly positive.

Steel also has rebounded from harsh conditions in the past several years. Euler's Tony Clary, risk vice president, said, "Large producers with access to capital markets pursued an acquisition strategy to take advantage of the consolidation caused by a large number of bankruptcies that took place during that period."

Steel prices have increased over the past two years because of strong consumption in China, the strength of the U.S. economy, and consolidations that provide more buying power and price stability. The sector is predicted to maintain its current levels and show a positive outlook because of strong demand and discipline by the market leaders, Clary said.

A full version of the report is available upon request. For more information, visit www.eulerhermes.com/usa.