Suppliers of steel plate are cranking out as much product as they can to meet the needs of customers ranging from manufacturers of heavy equipment to power-generating windmills.

By Myra Pinkham,
Contributing Editor

Sidebars and Tables:

• U.S. Total Plate Market
• Plate Prices and Margins

Demand for steel plate is as hot as the furnace it comes from.

Mill and service center executives report that virtually all end-use markets for plate are doing well, which means demand is outpacing supply. Distributors, on allocation, are having a hard time getting enough metal to meet customers’ needs.

“Of all the carbon steel products, plate is the strongest,” says analyst John Anton, director of the steel service at Global Insight in Washington, D.C. “Structural steel is also tight, but it is limited by the performance of the nonresidential construction sector. Plate, on the other hand, has more long-term potential. The end uses of plate are doing excellently, and should continue,” especially in the energy sector, he adds.

“Demand is every bit what we could ask for,” confirms John McLaren, sales manager for Jindal United States Corp., Bay Town, Texas. “If we could produce more, we could sell more. We are maxed out.”

The constrained supply is a mixed blessing for distributors servicing the steel plate market. With tight availability at the mills, more customers are knocking on service centers’ doors, notes Mark Breckheimer, president of Primary Steel Inc., Middletown, Conn. But with so many mill-direct orders in the works, especially for line pipe and other energy-related applications, “there isn’t a lot of plate left for service centers,” observes Bert Tenenbaum, president of Chatham Steel, Savannah, Ga.

Smaller service centers are having an even harder time gaining access to product from the more consolidated steel producers. “We are lucky to have the support of our suppliers, but we are a large buyer of plate,” says Breckheimer of Primary Steel.

Plate actually has been strong for the past three years, with a small fluctuation in apparent consumption, says Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. He notes that a half-million-ton inventory buildup in 2004 was offset by comparable destocking of inventories in 2005. True annual consumption has ranged from 10.8 million to 11 million tons since 2004 vs. about 9.5 million tons from 2001 to 2003.

“This year we are running full steam ahead and that is expected to continue at least through the third quarter or most likely through the rest of the year,” says Pat McFadden, sales manager for Nucor Corp.’s Hertford, N.C., plate mill.

“Earlier this year, we expected a falloff in the second half, but based on what we are now seeing both domestically and in the global market, I don’t think it will happen,” says Scott J. Montross, vice president of marketing and sales for Oregon Steel Mills, Portland, Ore.

Record high oil and gasoline prices have boosted exploration efforts, giving rise to hundreds of new drill rigs and renewed interest in alternative energy sources. “Anything to do with energy is strong including demand for plate for large diameter line pipe and for wind towers,” says John Tulloch, executive vice president for Ipsco Inc., Lisle, Ill. Jindal’s McLaren notes that last year’s hurricanes destroyed about 130 offshore drilling platforms that must be rebuilt to meet the economy’s need for oil and natural gas.

As the effects of the Enron debacle wane, recovering energy transmission companies have created a huge and growing market for large-diameter line pipe. The line-pipe market could get even stronger if Congress enacts legislation that allows drilling offshore in the U.S. continental shelf, says Montross. In June, the House passed the Deep Ocean Energy Resources Act, a bill allowing this controversial drilling. The Senate was considering similar legislation as of press time. “With energy prices as high as they are, it is likely to pass this time,” says Breckheimer.

That legislation would not affect the current market, but rather could extend current demand levels further into the future. “We have a lot of [transmission pipe] jobs right now, and we can make just so much plate. We want to make sure we maintain a foothold with customers who order from us day in and day out,” Montross says.

Alternative energy applications for plate, such as wind tower blades, are also expected to surge in light of the persistently high energy prices. According to Anton, crude oil prices, now $70 to $75 a barrel, are expected to stay above $45 a barrel at least through the end of the decade. Likewise, natural gas is expected to remain at least near $6 to $7 per MMBtu and could rise to $10 per MMBtu.

Entrepreneurs see opportunity in such high oil and gas prices. “We are seeing people in the energy business branching out,” says Montross. One example is Ameron International Corp., Pasadena, Calif., a water transmission company that is now getting into the wind tower business. “People are looking at energy costs and at alternative energy businesses, including wind power, throughout the country,” he adds.

“We are also seeing a lot of plate used in ethanol plant construction,” says Mark Haight, sales manager at Infra-Metals Co., Wallingford, Conn. This could generate substantial new sales given the large number of ethanol plants and plant expansions now under construction or on the drawing board.

Commercial transportation is another strong end-use market for plate, says Chatham’s Tenenbaum, including railcars, truck trailers and barges. Demand for truck trailers could taper off next year, he notes, along with demand for Class 8 truck cabs, which will be more expensive due to newly mandated environmental emission controls.

Heavy equipment manufacturers—big consumers of steel plate—report continued strong demand for off-road and construction machinery. Demand for farm equipment may be leveling, “but even that is flat at a good level,” says Bill Jones, president of O’Neal Steel Inc., Birmingham, Ala.

Like energy goods, the prices of mined commodities such as iron ore, copper, nickel and zinc are so strong now that makers of mining equipment are struggling to keep pace.

Similarly, makers of construction equipment have gotten a boost from the pickup in nonresidential construction that began about a year and half ago. Steelmakers benefit twofold by producing plate for both the equipment and the construction projects, such as bridges and other structures, Plummer says.

Public works projects have been very strong in light of several years of pent-up demand and increased federal and state funding for highway and bridge improvements, he adds.

State budgets are healthier today due to the strength of the economy. “Many times in the past federal funds were available, but the states didn’t have the matching funds to take advantage of them,” notes Haight.

Domestic mills have nearly all been operating at full capacity to meet the market’s demand for plate, and most have placed customers on controlled order entry to parcel out the available steel fairly. “We have been able to meet the needs of our customers, but we would like to do better,” says Nucor’s McFadden. “Our customers’ needs have grown beyond our ability to grow our capacity. We have made many improvements to the mill to increase the production rate of the caster and to optimize our handling schedule, as well as upgrading our quenching system for slabs. We are doing our best to keep our customers satisfied, but we are a little short,” he says.

Tulloch also admits that supply, while available, is tight. “We have controlled our order intake to make sure that we take care of our steady customers. Some people would like to buy more, but we need to maintain supply across the market.”

Jindal has worked to de-bottleneck its rolling plant, but has a different set of challenges than those platemakers with melt shops. The price of slabs has spiked dramatically because of production problems at Brazilian producer CSN. Jindal is still able to get all the steel its needs despite the tight availability worldwide, but has pushed lead times out to about 14 to 16 weeks from the usual 10 to 12. “Supply isn’t the question,” says McLaren, “it’s the manufacturing time. If there is any downtime, then lead times are affected.”

Plate imports have not been sufficient to meet the supply shortfall, mill executives report. “Imports are coming in, but in this strong market they are being absorbed almost immediately,” says Ipsco’s Tulloch. There is not enough plate coming in to change the supply-demand balance, Breckheimer agrees. “While there is currently some difference in the price of imports from Asian sources vs. domestic prices, imports are rapidly becoming less attractive,” he adds. “Worldwide demand is strong, and with the tight slab supply, foreign producers’ ability to make plate is constrained. The United States is not the most attractive market in the world right now.”

The tightness of plate has challenged some service centers, but they are doing the best they can with the volumes they can secure from the mills. “We would love to have more, but we are happy to get what we are getting,” says Thomas M. Brown, president of Cincinnati Steel Products Co. “We just have to plan more carefully.” He is also in contact with brokers more often than usual. “We pay a little more, but in this market we are able to pass it on.”

Jack Corrigan, executive vice president of Charles C. Lewis Co., Springfield, Mass., says that his company’s processing capabilities have helped meet customers’ needs. “Since we do a lot of grinding ourselves, in some cases we can resize the plate. We are able to be more flexible than some other companies.”

Mill and service center executives report that plate prices had increased to about $800 per ton in July, up from $675 a year earlier. Much of that increase has been to cover added input costs, says Nucor’s McFadden. “Scrap has gone up significantly through the year—faster than plate pricing. While we announced increases of $40 to $50 a ton between May and July, that does not cover our increased raw materials or freight.”

Despite concerns about whether prices have peaked and are poised for the inevitable fall, mill and service center executives alike expect the plate market to remain robust, at least in the near term. “This year is heating up to be one of our best years ever,” Brown says. “I see plate continuing to be one of the strongest carbon steel markets both this year and next year,” Anton adds. “Demand will continue to be strong through the end of the decade based on the energy and nonresidential construction markets.”