The U.S. economy might well experience a slowdown in 2007, but that won't dim growth prospects for several sectors of the materials industry. That's the view of Euler Hermes ACI, a global trade credit insurer. Its latest outlook report finds improving conditions in capital goods and steel. The first has shown "weak but improving" results over the past several years, according to Patrick Lane, risk vice president of Euler Hermes. Early this year, he said, manufacturing capacity utilization was hovering above 80 percent. That is typically the benchmark at which companies begin to commit capital for expansion. While the capital goods industry faces some challenges, including a continued shift of manufacturing to China and a focus on boosting plant efficiency, the sector's outlook remains "fairly positive," Lane said.
As for steel, it has rebounded from harsh conditions that prevailed over the past several years. Steel prices were at "anemic" levels in the late 1990s and early 2000s, said risk vice president Tony Clary. Bankruptcies were common, and large producers were swallowing up their smaller competition. But prices have firmed over the past two years, primarily due to increased demand by China, a stronger U.S. economy and the increased buying power and price stability caused by industry consolidation. Continued strong demand and pricing discipline by market leaders translate into a "fairly positive" outlook for the steel sector, Clary said.
In another recent report from Euler Hermes, the firm said that a world economic slowdown "should be more evident starting from the second half of 2006." Factors include a rise in U.S. interest rates, as well as in Germany's value-added tax. Both actions should dampen consumer demand. Asian economies that depend heavily on external demand will slow accordingly, Euler Hermes said. But the result will be a "soft landing," not worldwide recession.
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