http://www.metalcenternews.com RSS feeds for Metal Center News 60 http://www.metalcenternews.com/Editorial/CurrentIssue/January2012/tabid/5729/articleType/ArticleView/articleId/5227/MCN-Outlook-2012-Survey-Hopes-High-for-2012.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5729&ModuleID=13693&ArticleID=5227 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=5227&PortalID=51&TabID=5729 http://www.metalcenternews.com/Editorial/CurrentIssue/January2012/tabid/5729/articleType/ArticleView/articleId/5227/MCN-Outlook-2012-Survey-Hopes-High-for-2012.aspx Results from the latest Metal Center News Outlook Survey show that most industry executives have optimistic expectations for business conditions in the year ahead. By Tim Triplett, Editor-in-Chief While no one would argue that the economic recovery has a long way to go, service center executives appear more optimistic about their prospects for 2012 than any year since 2007. Each fall, MCN’s Outlook Survey polls readers to gauge their expectations for the year ahead. To quantify industry sentiment, MCN asks respondents to rank their feelings on a scale from 1 to 6. Those indicating 1, 2 or 3 fall on the pessimistic half of the scale; 4, 5 and 6 on the optimistic half. This year, 89 percent of respondents placed themselves somewhere on the optimistic half of the scale—even more than the 86 percent who indicated they were optimists in the prerecession boom year of 2007. Averaging all the results produces an Optimism Index of 4.5 on the 6-point scale, up from 4.3 last year and 4.1 the year before. Over the past 11 years that MCN has published its Optimism Index, the outlook among service center executives has largely followed the ups and downs of the economy, starting around the time the dot-com bubble that burst in 2002, peaking during the boom period of 2004-06, then plummeting in late 2008 as the Great Recession gripped the nation. To give the figures some perspective, the current reading of 4.5 still lags the peak of 4.8 in 2005, when 90 percent of respondents ranked themselves on the upper half of the scale. However, it has rebounded substantially from its low point of 3.5 in 2009, when only about half of respondents characterized themselves as optimists. Indeed, as the chart on page XX shows, industry sentiment is now running above the 11-year average, and it’s trending up. What’s the value of trying to quantify industry sentiment? Changes in optimism levels among industry decision-makers tend to correlate to their forecasts for growth, purchasing, compensation and capital spending, among other factors. In other words, the more optimistic they feel, the more ambitious their plans. The typical (median) service center responding to this year’s survey was a small company with one or two locations and 35 employees. At the peak of the market, the typical respondent had two locations and a workforce of 48. Looking at the mean of responses rather than the medians indicates that the average service center today has 1.3 fewer locations and 13.7 percent fewer workers than at its prerecession peak. Like companies in other industries, metal distributors tightened their belts during the downturn and have learned to do more with less. It could take years for service center employment to return to prior levels. Overall, service centers responding to MCN’s survey averaged total sales of $146.4 million in 2011. That compares to $144.5 million in 2010, or about a 1.3 percent increase, according to MCN data. Respondents are forecasting an average sales increase in 2012 of 7.4 percent. Asked to forecast metals pricing in the first quarter of 2012, service center executives generally see prices trending upward as the economy and demand improve. Respondents expect a 5.8 percent increase in the price of steel, a 3.2 percent bump in the price of aluminum, and a 3.7 percent gain in the price of copper, on average. Comments from the pessimists Asked to rank themselves on the optimist/pessimist scale and explain why, comments from the pessimists tended to focus on the larger macroeconomic issues: Financial problems in the U.S. and Europe bring high volatility to the world. There’s way too much uncertainty, and our government has done nothing to reduce the amount of business moving offshore or to help domestic manufacturing. We’re getting mixed signals from customers and the overall economy. There’s not enough work and too many small orders. Construction markets make up 50 percent of our sales and projections are flat for 2012. Comments from the optimists Comments from the optimists tended to focus on the positive signs of recovery and the proactive steps their companies are taking to capitalize on them: Assuming the economy stays as it is or improves slightly, I'm very optimistic. We have many new opportunities right in front of us. We are hearing a lot of positive feedback from our existing customers and also added a new distribution center to broaden our reach. The Midwest manufacturing environment continues to be strong and outlooks are staying positive. Heavy equipment and energy are key drivers. We are strong in automotive, which is forecasting a good year. We have made some strategic changes that look to be paying off. Our expansion into a new region is progressing well, our lean journey is yielding expected expense declines, and our quality program is becoming an advantage. The impact of current global economics will be felt in the service sectors as well as financial. So long as money is available to fund cap-ex projects, manufacturing will continue to outpace GDP growth in most economies. I think we all will be surprised by 2012. Methodology Results for this survey were gathered electronically. A link to an online questionnaire was e-mailed to MCN subscribers on multiple occasions in November and December. In total, 201 usable responses were completed, yielding an accuracy of plus or minus 6.9 percent at the 95 percent confidence level. Fri, 17 Feb 2012 15:55:00 GMT f1397696-738c-4295-afcd-943feb885714:5227 http://www.metalcenternews.com/Editorial/CurrentIssue/January2012/tabid/5729/articleType/ArticleView/articleId/5226/Construction-Slump-Cuts-into-Galvanized.aspx#Comments 1 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5729&ModuleID=13693&ArticleID=5226 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=5226&PortalID=51&TabID=5729 http://www.metalcenternews.com/Editorial/CurrentIssue/January2012/tabid/5729/articleType/ArticleView/articleId/5226/Construction-Slump-Cuts-into-Galvanized.aspx Gains in automotive continue to be offset by weak residential and commercial construction, leaving executives to wonder whether recent price hikes are sustainable in the galvanized sheet market. By Myra Pinkham, Contributing Editor While much improved, demand for galvanized steel continues to suffer from a weak construction sector. Despite price hikes announced for January and February, suppliers are concerned that new and restarted production capacity will put downward pressure on pricing in 2012. Galvanized prices have been volatile ever since the recession, which has made service centers cautious about building inventories, says Steve Almond, president of Phoenix Metals Co., Norcross, Ga. The lingering economic and political uncertainty around the globe has made companies hesitant to buy more than they absolutely need, especially since mill lead times are relatively short and mill depot stocks are readily available. Demand for galvanized steel—while marginally better in automotive, agriculture and other heavy equipment sectors—definitely has not recovered to prerecession highs, says Jerry Nelson, chief commercial officer for RG Steel LLC, Sparrows Point, Md. Weakness in building and construction, which account for about 40 percent of galvanized steel consumption, could persist for years, says Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. But even the construction market has been shown some recent signs of life, says Bill Sternard, executive vice president of Viking Materials Inc., Minneapolis. “I’m not saying it is picking up significantly, but the numbers are improving.” Single-family housing starts edged up in October to an annualized 3.9 percent. “While we still have a long way to go toward a recovery, some signs of hope are emerging in certain markets where economic and job growth is occurring and where foreclosures have not been an overwhelming obstacle,” says Greg Goad, general manager, commercial, for Severstal Columbus, Columbus, Miss. Ken Simonson, chief economist for the Associated General Contractors of America, reports improvement in the nonresidential construction categories. Commercial starts increased 15 percent, industrial building starts increased 24 percent, institutional building starts increased 10 percent and heavy engineering starts increased 5 percent year to date through November. The Architecture Billings Index of the American Institute of Architects, an indicator of future construction activity, hit 49.4 in October, up from September’s reading of 46.9, but still below the 50-point level that indicates increasing construction activity. “While construction has bottomed out, it is recovering a lot slower than anyone had expected,” says Kasandra Lutzko, product manager of metallic coated products for Fort Wayne, Ind.-based Steel Dynamics Inc. “I think we will see a slight seasonal uptick in the second quarter, much as we usually do, but we won’t see any sustained growth until the end of 2012,” predicts Nelson at RG Steel. How big an auto rebound? The automotive market’s growing need for galvanized steel is a whole different story. “We are seeing demand strengthen as automotive builds recover,” says Jim Mortensen, general manager of automotive sales for Dearborn, Mich.-based Severstal North America. North American automotive production is expected to reach 13.8 million to 14.0 million light vehicles in 2012, up from just under 13 million in 2011, says John Anton, director of the steel service at IHS Global Insight, Washington, D.C. That’s a major improvement from the 8.6-million-vehicle pace at the depth of the economic downturn. Anton expects annual auto industry output to return to 15 million vehicles by 2013. Richard McLaughlin, steel practice director for Hatch Beddows, Pittsburgh, is not as confident about the growing auto builds. Much of the recent growth could be the result of pent-up demand after slow summer production rates and supply chain disruptions tied to the earthquakes and tsunamis in Japan. “It is unclear if these rates of growth will continue past January or February,” he says. Price hikes to prompt buying? Lead times for galvanized steel have extended a bit in the first quarter because of a moderate increase in ordering activity prompted by mill price hikes. Major steel suppliers announced plans to raise galvanized prices by $80 to $110 a ton in three separate rounds, two effective with January shipments and the other with February shipments. Lead times for galvanizing lines vary depending on the markets they serve, notes Severstal’s Goad. Delivery now takes about six to seven weeks for general industrial orders vs. eight to nine weeks for automotive. Even with prices on the way up, few service centers and OEMs are hedge buying ahead of the increases. Most continue to order only what they need to fill holes in their inventories, he says. Chris Billman, market research analyst for Majestic Steel USA, Cleveland, says the second round of price hikes may have pushed some service centers off the fence and caused them to make some purchases. Almond predicts a good percentage of the announced price hike, $60 to $80 a ton, is likely to stick, especially with ferrous scrap prices on the rise. American Metal Market placed the average monthly Midwest hot-dipped galvanized sheet price at $910 a ton in December vs. $864 in November. “It wouldn’t surprise me to see another round of price increases early in the first quarter,” Nelson says. “I’m concerned that as domestic prices go up, however, the spread between domestic and import prices could be wide enough to increase imported galvanized steels late in the first quarter.” Up to this point, imports of galvanized sheet have not been much of a factor, except for certain specialized grades and sizes that aren’t readily available domestically, says Sternard at Viking, but that could change if the price spread widens. Does the market need more capacity? Another question for buyers is whether the stronger domestic prices are sustainable with all the additional galvanized capacity coming online. “I don’t believe there is enough demand to absorb all of the new capacity, not unless the economy picks up significantly,” says Almond at Phoenix Metals. Since much of the new capacity is more technologically advanced and cost effective, the older mills will find themselves at a competitive disadvantage, he notes. ThyssenKrupp Steel USA LLC has already brought its three hot-dipped galvanizing lines into production, as well as a cold-roll line at its new Calvert, Ala., mill. The facility adds 2.2 million tons of annual coated steelmaking capacity to the domestic market. Likewise, Severstal has commissioned the Phase II expansion of its Severstal Columbus facility, which gives the plant the ability to produce an additional 400,000 tons of coated steel each year. Severstal’s expansion of its Dearborn, Mich., facility raises its annual coated steel production capacity by up to 500,000 tons. Pittsburgh-based U.S. Steel Corp. recently restarted the 500,000-ton galvanizing and galvannealing Z-Line at its steelmaking complex in Hamilton, Ont. The Z-Line has one of the world’s largest zinc pots, which will take time to get up and running, so the company won’t be producing large volumes of steel there until sometime this quarter. U.S. Steel also has begun construction on a 500,000-ton continuous annealing line at its Pro-Tec Coating Co. joint venture with Kobe Steel in Leipsic, Ohio. The new line, which will be used to coat cold-rolled advanced high-strength grades, is slated to come online in first-quarter 2013. While RG Steel restarted the L blast furnace at its Sparrows Point facility last spring, it hasn’t restarted any of its idled coating lines nor has it announced any immediate plans to do so. However, as a “new old player,” Nelson admits that RG is looking to regain share in the galvanized market. With galvanized exports on the rise—up 27 percent from last year—there has been enough increase in demand to absorb the increased capacity so far. But much of the new production is just ramping up. “It depends on what happens with the world economies,” says SDI’s Lutzko, “but I don’t think that all of the capacity can be absorbed with current demand levels.” All capacity is not created equal, notes Mortenson, who warns against simply considering net supply vs. net demand. Severstal is gaining new capabilities with its expansions at Columbus and Dearborn that will enable it to enter new markets, he explains. The expansion at Dearborn will allow it to produce exposed galvanized and galvannealed steels for a wide range of high-strength steels, as well as a wide range of high-strength and advanced high-strength steels. At Columbus, it will be able to produce 0.130-inch thick by 72-inch wide cold-rolled and hot-rolled galvanized product. Much of the new capacity is aimed toward the growing automotive market in the South. These facilities are also well located to export steel to Mexico, Plummer notes, and won’t necessarily worsen the overcapacity targeting construction and other capital equipment markets. Most experts agree that 2012 should be a decent year for the galvanized steel market, better than 2011, but still well below prerecession levels. “I don’t expect to see anything significant until after the presidential elections and until banks become more confident about lending money,” McLaughlin says. Fri, 17 Feb 2012 15:49:00 GMT f1397696-738c-4295-afcd-943feb885714:5226 http://www.metalcenternews.com/Editorial/CurrentIssue/January2012/tabid/5729/articleType/ArticleView/articleId/5225/Has-China-Finally-Put-the-Brakes-on-Growth.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5729&ModuleID=13693&ArticleID=5225 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=5225&PortalID=51&TabID=5729 http://www.metalcenternews.com/Editorial/CurrentIssue/January2012/tabid/5729/articleType/ArticleView/articleId/5225/Has-China-Finally-Put-the-Brakes-on-Growth.aspx For the first time in a decade, China’s steel industry is showing signs of slowing. But even if the steel production cutbacks are more permanent than blip, the world’s largest nation will remain a major influence on the steel supply chain in North America. By Dan Markham, Senior Editor For the past decade, China has been the specter haunting the U.S. steel industry, with its scary brand of communist capitalism and otherworldly growth. But according to many China observers, North America’s steel suppliers have less to fear from their giant competitor in the Far East as they embark on 2012. For several years, the Chinese central government has floated the idea of slowing its overheated economy to head off inflation and other growing pains. In the second half of 2011, they put those words into action. China’s rate of growth has slowed substantially, say the experts, though it remains at high levels. “They’re slowing it down from 12 percent to 6 percent, but it’s still growing. We’d be fantastically happy with 3.5 percent,” says Bill Barron with Barrington, Ill.-based KDC & Associates, whose company specializes in sourcing Chinese products for American manufacturers. Steel production in China, however, has been in actual retreat. “China’s monthly production of steel has come down from netting an annualized rate of 700 million metric tons per year to closer to 600 million tons,” says John Short, director of metals for Newedge, a global brokerage company. “That’s all since last summer.” According to Chicago-based Steel Market Intelligence, Chinese steel production fell in November to 1.66 million tons per day from 1.76 million tons in October. It was down 16.8 percent from its June peak, and even experienced a rare year-on-year drop of 0.6 percent. Such an uncharacteristic decline indicates a new level of seriousness about the central government’s desire to rein in growth, and along with it steel production. Court Strikes Down Use of CVDs Against Nonmarket Economies U.S. industries that have grappled with unfair trading practices by Chinese and other foreign competitors have lost a powerful weapon in that fight. In late December, in a non-steel case, the U.S. Court of Appeals for the Federal Circuit struck down the Commerce Department’s ability to apply countervailing duty tariffs against nonmarket economies on top of antidumping duties. Though the ruling was based on a case involving Chinese tire imports, the precedent will affect all products. For steel, the ruling will have a significant impact in the tubular market, for instance, where CVDs are in place on at least seven products. Some duty rates on tubular goods top 600 percent. Not surprisingly, the ruling was greeted with trepidation by leading U.S. trade groups. “AISI is gravely concerned with this erroneous court decision, which will cost valuable American jobs at a time when we need to be creating jobs,” says Thomas Gibson, AISI CEO. “With over 20 Chinese products currently subject to countervailing duties—duties that were imposed only after a comprehensive investigation—this ruling gives Chinese producers and exporters a license to unfairly attack the U.S. market with the full resources of the Chinese government.” Even if expected appeals fail, the removal of CVDs against various steel products will not happen overnight. Additionally, antidumping duties will remain in place on products where violations were demonstrated. The court cited a 1984 ruling that prevented the use of CVDs against nonmarket economies, while also noting that laws passed in 1988 and 1994 by Congress reaffirmed this position. “If left to stand, this ruling will deny the U.S. government a critical WTO-authorized tool to address one of China’s leading trade-distorting practices. AISI urges the Obama administration and the Congress to begin work immediately to enact legislation clarifying that the CVD law continues to apply to nonmarket economies like China, where the Department of Commerce determines that it can isolate and measure subsidies,” Gibson says. “Congress has never passed any legislation prohibiting the application of the CVD law to nonmarket economies, and the court’s mistaken conclusion to the contrary must be corrected.” The presiding judge in the tire case agreed that Congress is the place to remedy the situation. “If Commerce believes that the law should be changed, the appropriate approach is to seek legislative change,” Judge Jane A. Restani wrote in her ruling. During its rapid run-up, many analysts expected the Chinese steel industry to eventually hit 1 billion metric tons in annual production (the whole world produced about 1.4 billion tons in 2011). The fear among producers in other parts of the world is that China will make more steel than it can use and begin to dump cheap exports on the global market. But Short says the country’s industry has hit its natural cap. And the reason is quite simple: Chinese steel production is not profitable. “It doesn’t make a lot of sense to make steel in China because they don’t make money,” Short says. “We don’t see China roaring ahead to a billion tons of steel.” In the future, during periods of high growth, he believes the Chinese steel industry may reach 700 million tons. Normal levels of growth will support a 600-million-ton level, while output may drop below 500 million tons during slower periods. Analyst Michelle Applebaum of Steel Market Intelligence agrees that China has lost its appetite for unrestrained growth in steel. “The size and spread of Chinese production cuts in recent months is bullish for the global steel industry and is further evidence of a seemingly permanent policy shift for Beijing,” she wrote in the November SMI report on Chinese steel. “The production decline is a reflection of a fairly rapid supply response driving production cuts. Weakening demand due to credit tightening, combined with lower prices, has pushed most Chinese producers back into the red.” The net effect of China’s scaled-back steel production is a decline in the number of Chinese products on the international market—good news for steelmakers in other countries. Though China has not been a major exporter to the United States, its exports to nearby countries such as Japan and South Korea can trigger other exports from Southeast Asia and create a cascading effect throughout the world’s supply chain. How much of China’s steel ends up on the open market is dictated by central government policies. At the moment, the Chinese government is “in a mode to police them tightly,” Short says. “Letting any more than four to five million metric tons go every month is going to be very difficult.” Through the first nine months of 2011, the U.S. imported 951,000 tons of steel from China. That made China eighth on the list of foreign suppliers to the United States, according to the American Institute for International Steel, a trade group that represents foreign producers. “Imports of Chinese steel products are down dramatically over the last two years, in part because of trade cases, but also in large part due to their economy growing faster than they were adding capacity. There was a long period of time where their growth was outpacing demand, but that appears not to be the case now,” says Dave Phelps, president of the McLean, Va.-based AIIS. A rival association sees things differently, however. The American Iron and Steel Institute, Washington, D.C., which represents domestic suppliers, expects Chinese steel coming onshore to grow. AISI CEO Thomas Gibson says his trade group’s main concerns are “that the Chinese government will continue to provide massive subsidies to China’s steel and steel-related state-owned enterprises; that a severely undervalued Chinese currency will continue to provide an unfair competitive advantage to Chinese steel producers and other manufacturers; and that excess capacity conditions and slowing demand in China’s domestic market could lead to Chinese export surges.” AISI sees China moving away from market-oriented reforms and more toward a model of “state capitalism,” Gibson adds. In addition, U.S. industries concerned with China’s practices have lost a few methods to combat them. In December, a federal court overturned the use of countervailing duties against nonmarket economies (see sidebar). Also, last month marked the 10-year anniversary of China’s entrance into the World Trade Organization, a controversial admittance that carried with it annual reviews of China’s compliance for the first eight years and a final review after a decade. From now on, China will only be subject to the same trade policy review mechanism other WTO members must face. “The transitional review mechanism has provided the United States with a somewhat useful tool for fact-finding and casting attention on controversies within the U.S.-China trade relationship,” according to the 2011 Report to Congress of the U.S.-China Economic and Security Review Commission. Of course, production is just one part of the steel supply chain. When it comes to downstream products, China’s presence continues to grow. “Logically, the concern should focus on downstream products,” Phelps says. “That’s where the domestic steel industry and AIIS might see eye to eye. We’d rather see steel mill products imported into the U.S. than fabricated products downstream because you lose your customers that way.” Phelps’ fears are well founded, according to the congressional report. Through the first eight months of 2011, Chinese goods exported to the United States totaled $255.4 billion, compared to $66.1 billion worth of goods that went from the U.S. to China. Still, it’s not the magnitude that is most concerning, but the composition away from labor-intensive products toward more high tech. “Production is driven increasingly less by low-cost labor and increasingly more by low-cost capital, which is used to build next-generation manufacturing facilities and to produce advanced technology products for export,” the report states. Exports of labor-intensive products constituted 37 percent of Chinese exports in 2000, but only 14 percent by 2010. “America’s export strength lay in such complex capital goods as aircraft, electrical machinery, generators, and medical and scientific equipment. China’s exports to the United States are increasingly from its capital-intensive industries, particularly advanced technology products,” the report states. In August, the U.S. exported $1.9 billion worth of advanced technology products to China, while importing $10.9 billion—a record one-month deficit of $9 billion. Various groups, such as the Reshoring Initiative, are working to attract value-added manufacturing back to North America. But there is a limit to how much reshoring realistically can take place, warns KDC’s Barron. “Some businesses have moved back, with Mexico picking up a lot, but for some industries there is nothing to move back to,” Barron says, citing the computer electronics industry, which has completely relocated to Asia. Still, there is considerable hope that China’s overall economic policy is shifting inward. “They’re trying to change their economy from one that’s export driven to one that’s domestic driven,” says analyst Charles Bradford of Bradford Research in New York. Whether its products are destined for foreign shores or to satisfy its growing middle class, China’s appetite for steel will have a considerable affect on the price the world over. During its run-up, China has had a voracious appetite for raw materials, serving as a key driver in the rapid escalation of input costs. “For decades and decades, the iron ore producers in the world and the U.S. were the poor country cousins of the domestic steel industry, and now they’re the king,” Phelps says. “The growth of China changed everything when it comes to raw materials.” But with China scaling back its steel production, the demand for iron ore and other raw materials has softened. “We’ll have a much lower iron ore floor going forward in 2012 than we had in 2011,” Short says. Consequently, the peak pricing for hot-rolled seen in 2011 is unlikely to repeat this year. Hot-rolled in the United States topped out over $900 last year, but Short does not see the current fundamentals supporting such highs in 2012. While China’s sheer size will keep it at the top of the watch list, Europe’s well-documented problems could have a bigger impact on the United States in 2012. “The European steel business is in a difficult position right now,” Bradford says. “Some of those mills are in very bad shape. Could they try to export to the United States to bail themselves out? I think that’s more of a possibility than China doing it.” Europe has long been a significant destination for Chinese steel, he adds. Recession in Europe could kill consumption and leave some of that Chinese steel looking for a new home—possibly in the United States. Thus 2012 could see the U.S. market trade one specter for another. Fri, 17 Feb 2012 15:38:00 GMT f1397696-738c-4295-afcd-943feb885714:5225 http://www.metalcenternews.com/Editorial/CurrentIssue/January2012/tabid/5729/articleType/ArticleView/articleId/5153/The-Top-25-of-Tempering.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5729&ModuleID=13693&ArticleID=5153 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=5153&PortalID=51&TabID=5729 http://www.metalcenternews.com/Editorial/CurrentIssue/January2012/tabid/5729/articleType/ArticleView/articleId/5153/The-Top-25-of-Tempering.aspx Growing demand for stay-flat steel has put a spotlight on the small group of processors who have invested in temper mill cut-to-length lines. By Tim Triplett, Editor-in-Chief Manufacturing plants and job shops across the country are adding high-tech cutting machines such as lasers and water jets to improve their productivity and the precision of the parts they produce. To get the optimum output from this computer-controlled equipment, they need to start with steel sheet that is absolutely flat and stays flat when it is cut. This growing demand for stay-flat steel has been a boon for both producers and operators of leveling equipment, notably temper mills, though tempering remains a fairly exclusive club. North America is home to just 25 temper mill cut-to-length lines operated by just 14 companies: SSAB, Steel and Pipe Supply Co., Steel Warehouse Co., Nucor Steel, Cargill (formerly Robinson Steel), State Steel, Norfolk Iron and Metal, Olympic Steel, Central Coil Processing, Feralloy, Ryerson, Nova Steel, Fortacero and Triple S Steel Co. Olympic is now ramping up the nation’s newest temper passing facility in Gary, Ind. (see sidebar), while Steel Warehouse and Triple S Steel Co. are partnering on a new heavy-gauge mill to open in Houston this summer. “We think people are just going to continue to demand better quality steel, and the best steel you can make comes off a temper mill,” says Gary Stein, president of Houston-based Triple S Steel. Norfolk Iron and Metal operates a temper mill at its Norfolk, Neb., headquarters, as well as a line in Rock Island, Ill., also in partnership with Steel Warehouse. “We are seeing greater demand for extremely flat high-strength material. It’s our belief that a temper mill is the best way to handle it,” says Dick Robinson, Norfolk Iron president. “We feel it gives us better quality control than any other means of leveling heavy wide coil. It is the only procedure that helps us meet the quality standards of the future.” Olympic Tempers the Competition Olympic Steel enjoyed one of its most ambitious growth years ever in 2011, from its $156 million acquisition of Chicago Tube & Iron Company to a handful of smaller initiatives across the country. Among its biggest projects was the installation of another temper mill at its newly acquired Gary, Ind., facility. The $30 million mill, located on the west side of U.S. Steel’s Gary Works property, came on line in late 2011. The company has begun accepting orders for temper passed plate as it ramps up to full production later this year. While it is the third temper mill in the company’s portfolio, the new mill differs from previous start-ups in Cleveland and Bettendorf, Iowa. Those were greenfield projects, whereas in Gary Olympic opted to upgrade an older facility purchased from U.S. Steel. The genesis for the project dates back to a 2010 conversation between Olympic’s Chairman Michael Siegal and U.S. Steel’s John Surma. The chairman of the steel company knew Olympic was interested in starting up another temper mill and believed one of a couple sites on the Gary property might work for the project. Olympic ultimately opted for a 177,000-square-foot facility that once housed a U.S. Steel electrogalvanizing line. “We thought this one had the most potential for fitting our needs,” says Raymond Walker, senior vice president of Olympic’s eastern region, who headed up the project. “Tempering in general is driven by people wanting to process higher-strength steels. It’s imperative that the material is flat and stays flat when it gets cut.” Olympic began installation of the temper mill cut-to-length line in June. Designed to handle half-inch plate, 72 inches wide, at grades 50, 80 and 100XL, it includes equipment from I2S, Yalesville, Conn., and Butech Bliss, Salem, Ohio. It is similar to the temper mills at Olympic’s other facilities, but with the very latest systems and controls. The company leveled its first coils on the line in late-December. At full production, the mill will have an annual capacity of 150,000 to 180,000 tons. “We need to work our way through the ramp up and prove the equipment. When we get to the third or fourth quarter, we’ll be running fairly full,” Walker says. Setting up the line in an older building, one that had been idle for three years, had its challenges. Unlike a greenfield site, Olympic had to locate utilities and adapt to existing conditions. “Since this building goes back to the 1960s, there is a lot of history with it. Someone had to find the drawings, dig them out and see who had the institutional memory,” says Walker. On the other hand, the facility paid some unexpected dividends in the form of two 50-ton cranes that came with it. “We thought we were going to have to remove them and start over, but when we fired them up and tested them, we found they were great,” says Terry Rohde, general manager of the facility. “We’re upgrading them, putting remotes controls on them and few other things, but these are million-dollar cranes.” The company will eventually relocate the heavy cranes to the receiving end of the building and install two additional 20-ton cranes for the finished goods side. Olympic is already selling temper passed plate out of the facility, and will eventually add cutting tables for more value-added processing. “In most of our facilities where we have plate products and temper pass, we also have oxyfuel or plasma burning,” Walker says. “Some customers want us to sell them a widget all cut out. That’s the next step.” The Gary mill, a short drive from three interstate highways, will allow Olympic to better serve its existing customers, as well as grow its customer base, Rohde says. Previously, the company served buyers in the Chicago/Northern Indiana region from either its Cleveland or Iowa facilities. “Everyone wants their stuff the next day. If you’re a little closer, you put a little more comfort in your customers’ minds.” The new mill also takes some freight costs out of the equation. “We have a lot of potential new customers who are excited that we’re here,” Rohde adds. “We’re poised for growth in 2012.” Even before they ran the first coil through the new Gary mill, Olympic officials were laying the groundwork for No. 4. The company does not have a specific location picked out yet, although Walker says it will be in the Southeast. It already has an option with equipment manufacturers I2S and Butech Bliss to purchase an identical temper mill for the next location.--By Dan Markham, Senior Editor Paul Labriola at Robinson Steel (now Robinson Laser, East Chicago, Ind.) is widely credited with being the first to temper pass heavy gauge coil into cut-length plate back in the late 1980s. (Cargill acquired Robinson’s temper lines in East Chicago and Granite City, Ill., in late 2009.) Soon to follow Robinson into the market were Steel Warehouse Co., South Bend, Ind., and Feralloy in partnership with U.S. Steel at Burns Harbor, Ind. About a dozen other companies have made the investment in temper mill lines in the two decades since. Why so few? It’s a big commitment. A temper mill cut-to-length line can cost anywhere from $8 million to over $20 million, depending on its features and capabilities, say equipment vendors. Leveling wide high-strength steel in coils up to 1-inch thick calls for tremendous horsepower. Why is it necessary? When hot-rolled steel is rolled, cooled and coiled at the mill, the process introduces undesirable flaws such as coil set, center buckle and edge wave. Such shape imperfections must be removed to produce a high-quality sheet. Conventional roller levelers do a good job of flattening the sheet, but don’t always remove the “coil memory.” Thus when a part is cut from the sheet, it tends to bow or twist as it tries to revert to its original shape. During production, automated cutting heads programmed to travel close to the sheet can actually strike a bent part and damage the equipment. Temper mills level steel by compressing the sheet between two work rolls under enormous pressure with up to 10 million pounds of separating force. Temper passing actually decreases the thickness of the material by 1.5 to 2.0 percent. This process elongates the coil, equalizing its internal stresses, increasing its yield strength and improving its surface finish. Temper pass lines usually incorporate an uncoiler, then a temper mill followed by a roller leveler to produce flat, stress-free material, which is then sheared to the desired length. Roller leveling and temper passing are not the only ways to level steel sheet. Stretch levelers have won many converts in recent years who contend stretchers produce a product comparable to temper passed. Stretch-leveling technology basically works by gripping and stretching the steel with tremendous force to equalize all the internal stresses. At roughly $5 million to $6 million, a stretch level line costs less than half the investment for a typical temper mill, say equipment suppliers. Among the unlikely converts is Steel Warehouse Co., South Bend, Ind., which was an early pioneer in temper leveling and now operates six temper mills. The company is putting a stretch level line in its Milwaukee operation, says CEO Dave Lerman. “Stretchers seem to work well on lighter gauges, not necessarily the super high strengths. The higher the strength, the thicker the material, the more the temper level technology makes a difference.” Which approach is best actually depends on a processor’s customer base. “If you have a market that does not use the super heavy steel, and you don’t have the tonnage to invest in a temper mill cut-to-length line, you do the next best thing. We call it the next best thing because we believe temper mill product is still a bit superior,” Lerman adds. Butech Bliss, a Salem, Ohio, equipment vendor, fabricates all three types of leveling equipment. Like other companies, Butech has run tests comparing the technologies. “The consensus is that temper passed material is the most memory-free. When you put it through a laser burning or punching operation, it stays flat,” says Jock Buta, executive vice president of Butech Bliss. Temper mill lines represent a growth area for Butech and other equipment suppliers. “Part of what’s driving it is a new awareness among users that they can now get this memory-free material, even heavy gauge, which makes their fabrication a lot easier. It’s almost because flatter material is available that more people want it. It’s easier to set up and fixture their parts. It is more predictable, with less variability in cut tolerances,” Buta says. Interest in temper passed material is increasing among users of high-strength or “pipe-grade” steels in particular, Buta says. The stronger the steel, the more difficult it is to level. Another important distinction, he adds: a temper mill produces a smooth, high-quality surface finish, a benefit not achieved by stretcher or roller leveling. Delta Steel Technologies (formerly DBI), an Irving, Texas, supplier of temper mill equipment, also has compared the flatness of temper passed steel to other processes. “We have measured the springback, and the temper passed material was by far flatter,” claims Joe Savariego, Delta president. However, suppliers of stretch leveling equipment, such as Leveltek International, Benwood, W. Va., and Red Bud Industries, Red Bud, Ill., argue that their technology is just as effective at a much lower cost. Dean Linders, RBI’s vice president of sales and marketing, says stretchers and temper mills basically accomplish the same goal: they both apply force that exceeds the steel’s yield through all of the material, top to bottom, relieving the internal stresses. “As long as you can exceed the yield on 100 percent of the material, it doesn’t really matter whether you use a temper mill or a stretcher. They both do a good job,” he says. Most temper mill cut-to-length lines also include a roller leveler to help get the material flat. A temper mill compresses and lengthens the material proportionally, Linders explains, so a coil that starts out with a wavy edge may still have edge wave even after it is tempered. “A temper mill does not necessarily do a fantastic job of getting material flat. That’s why you see a roller leveler after the temper mill to address the side-to-side length differential that produces edge wave or center buckle.” A stretcher, on the other hand, accomplishes both feats at the same time by stretching the material top to bottom and side to side. Linders acknowledges that a temper mill produces a smoother surface. A temper line with a rotary shear also is a faster, more continuous process, whereas stretchers must stop and start as they regrip the material. But he disputes the common belief that stretch levelers cannot handle high-strength heavy-gauge steels. “It just comes down to how big you can build it. It is not a matter of the technology as far as the process goes. If you can build one big enough, there is no limitation.” Red Bud has installed over 30 stretcher level lines since 2003, designed for sheet ranging from 10-gauge all the way to three-quarter inch. “The results are just as good whether we are stretching 10-gauge or three-quarter,” he claims. Today, the company is getting inquiries from customers that want to stretch level metal up to an inch thick. “With hydraulic cylinders, it’s not that hard to produce the stretching force. The trick is being able to grip the material without marking it or slipping when we apply the types of forces we need to stretch it. That’s the challenge,” Linders says. So, what is a service center to do as more and more customers demand flatter memory-free steel? Sourcing it from a competitor with a temper mill is one option. Installing a stretch leveler is another. Or they can bite the bullet and invest in a temper mill cut-to-length line of their own, Savariego says. “These temper mill lines are more obtainable than people think,” he adds. Cleveland-based Olympic Steel is now ramping up its third temper pass line in Gary, Ind. Ray Walker, senior vice president for Olympic’s eastern region, says the latest temper mill equipment can handle high-strength heavy-gauge sheets up to 110,000 min yield, once thought impossible to truly level. Uses for such material include construction and agricultural equipment, cement mixer drums, crane booms, aerial work platforms and other critical applications. Olympic usually temper passes material to fill a particular order, rather than stocking temper-passed plate. It makes more sense to inventory the material in coil form, Walker explains. “For us to turn a coil into a cut-length sheet, it is just a matter of the next day. When it is sitting there in coil form, you can make it any length you need. That provides more flexibility for the customer.” While he declined to discuss the price of temper-passed plate, he noted that sophisticated applications call for sophisticated steel, and customers are willing to pay a premium. A temper mill is a major competitive advantage for its owner, he says. “There are fewer people who can process wide, heavy-gauge, ultra-high-strength steel, have the inventory, and can deliver it on time.” How many temper mills does the market in North America need? No one really knows. Processors say they are taking it one regional market at a time. Some lines are full, others have excess capacity. “A temper mill is a giant investment, probably five to eight times the cost of a regular high-end cut-to-length line, so you have to put tons through it,” Lerman says. “You can’t be in this business in a casual way. If you are not running them pretty hard, you won’t make money with them.” Investing in a temper mill is not for everyone, agrees Robinson at Norfolk. “A temper mill is a significant investment and it demands that you do significant tonnage to make it pay. Right now if you have material you want temper passed, there is plenty of capacity to get it done. Our economy needs to grow a bit.” But demand for temper passed material is on the upswing all over the world, adds Savariego at Delta. “Users need to know that when they put a sheet of steel on that laser, it will produce a true finished part. The only way to do that is with true stay-flat steel,” he says. “It’s an evolution of technology. Eventually it will be a must-have. End customers will come to expect it.” Mon, 13 Feb 2012 16:05:00 GMT f1397696-738c-4295-afcd-943feb885714:5153