U, V and W: Theyre not just the 21st, 22nd and
23rd letters of the alphabet. They also represent three
competing theories on the current downturn and where the
economy might be heading in 2012.
The biggest question is whether we have hit bottom
yet. As the surveys and stories in this issue show, confidence
is low in the metals sector as the new year gets under way.
Most respondents to AMM surveys believe a full
economic recovery is still two to three years away.
Yet for most of 2011, the signs were beginning to
point up. Auto sales rose, metals prices were up, steel mill
demand was climbing and scrap prices were soaring to record or
near-record levels. If nothing else, some stability had
returned to some sectors of the market. But that began to
change during the fourth quarter.
As 2011 headed into the holiday season, many in the
metals sector were losing some of the swagger they displayed
earlier in the year. Despite months of strong demand and
climbing prices, starting in October the metals sector
experienced some negativity. Some finished and semi-finished
steel prices began to drop a bit, as did the values of other
metals. Ferrous scrap prices, which essentially spent February
to September in a static, high-value zone, began to drop,
including a precipitous decline in November. Service centers
went into a protective mode on inventory issues. And the mood
began to turn from sanguine to dark.
Which brings us back to U, V and W.
U: n this scenario, the economy
slips to a bottom level that is wide enough to require some
momentum to escape. Because of this, the economy could appear
to stall for a time before a real upturn takes place. Some say
the current doldrums represent exactly this economic
V: or a time, this was the most
popular theory in describing the 2008 downturn. Under this
model, the economy slides quickly and deeply
downwardwhich happened in 2008before starting a
long, steady climb back up. While some signs suggest this is
still a possible path for the current recovery, statistics and
other signs should have been stronger by now if the recovery
was going to be quick and sharp.
W: his is the one holding the
most currency right now. In this scenario, the economy turns
sharply downward and hits bottom before seemingly starting to
recover, but after a few optimistic signs appear things take
another turn for the worse and head down again before a final,
truer recovery later.
What is uncertain is where 2012 really will take the
economy. But one thing is certain: Given all of the variables,
understanding the UVWs is not quite as easy as learning the