http://www.metalcenternews.com RSS feeds for Metal Center News 60 http://www.metalcenternews.com/Editorial/CurrentIssue/August2012/tabid/5815/articleType/ArticleView/articleId/8135/MCN-Mid-Year-Report.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5815&ModuleID=14005&ArticleID=8135 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=8135&PortalID=51&TabID=5815 http://www.metalcenternews.com/Editorial/CurrentIssue/August2012/tabid/5815/articleType/ArticleView/articleId/8135/MCN-Mid-Year-Report.aspx Have We Seen the Best of 2012? North American service centers enjoyed a fairly pleasant business climate in the first half, but economic uncertainty around the globe has had a chilling effect on prospects down the road. By Dan Markham, Senior Editor Most service center operators look back on the first half of the year with a feeling of accomplishment, but their outlook for the rest of the year is considerably less bullish. Interviews with service center executives for this mid-year report revealed a general sense that the best of 2012 is behind us. “We continue to be optimistic, but so far our optimism has been misplaced,” says Nathan Kahn, president and CEO of Fort Lee, N.J.-based Empire Resources. Thus far, most service centers report excellent results, with improved year-over-year performance during the first six months, at least from the perspective of the amount of metal sold. “Volumes have been fairly strong across our product lines and geographies,” says Gary Stein, president of Triple S Steel Supply Co., Houston. Esmark has enjoyed similar results. “Our business has been stronger, volume-wise, than it was in the first half last year. Pricing-wise has been a different story,” says Tom Modrowski, CEO of Pittsburgh-based Esmark Steel Group. Moreover, most operators reported similar breakdowns about the first half itself, with outstanding performance through the first three months, followed by a slower second quarter. “The first quarter was stellar, exceeding expectations by quite a bit,” says Brian Robbins, CEO of Mid-West Materials, Perry, Ohio. “The fact the first was so strong downplayed the second’s activity. It was by no means bad, just not as good as the first quarter.” Other distributors echoed those remarks, particularly in regards to profitability. “The margins were pretty good in the first half, but we started to see a change in the price in April. That’s when the average selling prices started to fall, and they’ve continued to fall,” says Wayne Bassett, president and CEO of Mississauga, Ont.-based Samuel, Son & Co., Ltd. “As they’ve gone down, our margins and our profitability have gone down. It’s not a disaster, but not as good as it was.” The story is similar in specialty metals. Jeff Wise, vice president of sales and marketing for Rockaway, N.J.-based Titanium Industries, says his company enjoyed a robust first quarter, but activity slowed considerably around April. The result was a first half on par with the second half of 2011, “but not the booming market we had anticipated.” As for the back half of this year, few service center executives are expecting the next six months to match the first. Their fears are based on several macroeconomic factors the industry simply can’t escape. Economic data released in recent months is, at best, confusing, and has caused buyers to pull in the reins. “I don’t see any business having enough faith in the future to place long-term orders or increase order quantities,” says Wise. “There’s too much uncertainty in the world right now.” The upcoming election is curbing growth, as businesses proceed cautiously while awaiting the outcome in November. “People are watching it very closely. The issues of business-friendly government vs. unfriendly will have an impact on purchasing managers’ view of the world,” says Kahn. “The political distraction is overwhelming. The overall manufacturing sentiment is one of frustration with the political environment,” Robbins adds. On top of that, service centers continue to keep an eye abroad, as Europe remains an economic mess and activity in the emerging markets has slowed considerably. “I think we will have a slower second half as a result of the upcoming recession in Europe and the slower growth in China and India, plus the uncertainty in D.C. and the normal summer and early winter slowdown in business,” says Roy Berlin, president of Berlin Metals, Hammond, Ind. “Obviously, Europe is a huge concern, both directly and indirectly,” says Bassett. “It’s a fairly significant export market out of the United States and Canada. But it also affects people’s feelings about the world. When people are nervous, stock markets go down. And a lot of the industries that we sell metal to slow down. That’s a problem.” Even if the second half slows, it likely won’t hit every market equally. Transportation markets, including automotive, truck trailer and railcar, are expected to stay strong, while construction is expected to remain weak. Prospects in even the most robust markets are being called into question. Most service center operators report good demand from the energy markets, a consistent trend for several years. But the recent drop in oil prices has had a dampening effect in some quarters. Bassett reports that his company’s energy business has tailed off as activity in Western Canada has slowed. “It needs [a price of] $85 per barrel, because it’s a high-cost oil to take out of the ground. As the prices have pushed on, we’ve seen projects slowed or delayed.” Stein sees a similar threat to energy-related activity in the Gulf area where Triple S operates. Supply chain concerns With wild price swings now a part of daily life for distributors, holding stock carries a much bigger risk. Almost four years removed from the devastating market collapse in late 2008, most service center operators remain wary about building up inventories. As a master distributor of aluminum and steel, Empire Resources bucks that trend, maintaining a healthy supply of material at all times. But Kahn sees firsthand the attitudes other service centers have toward carrying metal. “Our customers hate inventory. We’ve been doing consignment programs where they keep no inventory on the floor. We keep it in our warehouse and they call as needed,” he says. That change in attitude is reflected in Metals Service Center Institute numbers that show months on hand for all service center products now consistently in the mid two-month range. Berlin says he’s not a believer in changing inventories based on price, instead focusing on where demand is strongest and the existing agreements he has with customers. “I do think the industry was burned in the recession, and that everyone I know is being very cautious.” Esmark’s cautious attitude toward inventory predates the recession. “We’ve always had a lot of discipline on inventory,” Modrowski says. “We don’t go long, we don’t speculate. We don’t think we’re smarter than the market.” Not every company puts such a premium on running bare bones levels of inventory. Stein says Triple S “has always believed in keeping deep stocks. While that positioning has really burned us a few times lately, we simply believe it is our supply chain role, not that of the steel mills, to be the holder of inventories.” Of course, if the mills would lock in prices for longer periods, that would provide an incentive for service centers to stock up. But there is too much volatility in raw material prices for the mills to make any guarantees. With current steel production levels outpacing demand, the oversupply situation provides shorter lead times, which makes inventory control a little easier, Berlin notes. But it also puts downward pressure on prices. “In the last few weeks, domestic mills have taken steps to manage their output through shutdowns, outages and maintenance. These steps are bringing domestic supply more in line with market demand,” says Tom Innis, director of corporate relations for Majestic Steel, Cleveland. But there’s a limit to the mills’ responsiveness, Robbins says. “The fear of losing market share is pervasive.” With demand on the wane in other parts of the world, the possibility of surges in low-priced imports weighs heavily on domestic suppliers. “China is slowing down significantly, and I think India is in the same boat,” says Bassett. “We’re a little concerned that these two countries won’t chew up as much metal as expected.” Excess steel that can’t find a home in Asia or Europe will likely make its way stateside. “Unless the world cuts down on production, it’s going to put more stress on imports coming into North America,” he adds. With U.S. steel prices near their lowest levels of the past 12 months, few service center executives expect any major declines in the second half. But most admit their forecasts are just speculation. “I expect we’ll see some firming, and possibly some modest increases, until we hit the fall," says Robbins. “But that doesn’t mean it has to happen.” “Prices never go down forever, they never go up forever and they never stay the same for more than a few weeks,” says Berlin. “So we can be assured of movement one way or the other.” M&A: Where are the deals? With the economy slowly improving, many service center executives expressed confidence that merger and acquisition activity was set to pick up steam in 2012. Consolidation of the distribution industry remains largely stalled, however, as sellers’ expectations continue to exceed what acquirers are willing to pay. “There are always going to be those service centers for sale that are small, privately held, single-location where the next generation doesn’t want to come in to the business, but I think the timing is off for sellers,” says Modrowski. Kahn believes much of the industry’s consolidation has already run its course. “I think a lot of the M&A activity we’ve seen has snapped up a lot of the better prospects. There’s an issue of diminishing returns.” Still, others expect the deal making to resume eventually. “We still see the service center sector as overly fragmented, which represents an opportunity for further consolidation,” Innis says. “Continued market volatility and uncertainty may have slowed the pace of M&A for the time being, but ultimately we see consolidation continuing.” Bassett hopes so. His company has been among the more aggressive acquirers in North America, and growth through acquisition remains an important part of Samuel’s strategy. In fact, there is no shortage of potential targets, though consummating deals in the uncertain economic environment has not been easy. “We’ve never seen this much activity. I have five people dedicated to M&A, and they’ve got more companies coming in for sale than we can possibly deal with. But it’s difficult to get pricing together right now between the two sides’ expectations.” Nevertheless, he hopes his company can complete one or two deals before the end of the year. Mon, 01 Oct 2012 17:45:00 GMT f1397696-738c-4295-afcd-943feb885714:8135 http://www.metalcenternews.com/Editorial/CurrentIssue/August2012/tabid/5815/articleType/ArticleView/articleId/8134/Second-Quarter-Report-Outlook-Mills.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5815&ModuleID=14005&ArticleID=8134 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=8134&PortalID=51&TabID=5815 http://www.metalcenternews.com/Editorial/CurrentIssue/August2012/tabid/5815/articleType/ArticleView/articleId/8134/Second-Quarter-Report-Outlook-Mills.aspx Compressed Margins Challenge Steelmakers Declining prices in the second quarter squeeze the nation’s largest publicly traded steel companies. AK Steel Non-Cash Charge Turns Profitable Quarter into Loss AK Steel, West Chester, Ohio, reported a net loss of $724.2 million during the company’s second quarter. The second-quarter results include the effects of a non-cash charge of $736.0 million. Excluding the effects of this charge, the company’s adjusted net income for the second quarter was $11.4 million. AK Steel reported a net loss of $11.8 million during the company’s first quarter. During last year’s second quarter, the steelmaker reported $33.1 million in net income. Net sales for the second quarter of 2012 totaled $1.54 billion on shipments of 1.4 million tons, compared to sales of $1.79 billion on shipments of 1.5 million tons for the year-ago second quarter. Sales and shipments were both up modestly compared to the first quarter. “During the second quarter, sluggish domestic and global economic conditions impacted shipment volumes and selling prices for our steel products,” said James L. Wainscott, chairman, president and CEO of AK Steel, during the recent conference call with analysts and investors. “Despite these market challenges, AK Steel recorded an improved operating profit and adjusted net income performance compared to the previous quarter.” AK Steel officials reported an average selling price for the second quarter of $1,152 per ton, a 1 percent increase over the first quarter of 2012, but about 3 percent lower than the second quarter of 2011. The higher average selling price for the second quarter was primarily due to a richer product mix and increased contract sales, partially offset by lower selling prices for spot-market sales. “Oversupply relative to demand, the actions of now bankrupt RG Steel and for-saleTK Alabama, and an increase of imported flat-rolled products all led to a decline in selling prices late in the second quarter in the United States,” Wainscott said. AK also reported promising news for the export of one of its products. The World Trade Organization concluded China had no legal basis to impose antidumping and countervailing duties on U.S.-manufactured grain-oriented electrical steel, a major product for AK. Despite the determination, the tariffs, which have been in place since December 2009, will remain in effect while China appeals the ruling. Since the tariffs were imposed, significant new electrical steel capacity has come on line in China and the rest of the world, AK officials reported. Also in July, members of the UAW ratified a new four-year labor agreement representing 1,250 production workers at the company’s Butler Works facility in Pennsylvania. The company has no other labor agreements expiring this year. Wainscott said his company has not heard from customers concerned about unsettled labor situations at ArcelorMittal and U.S. Steel and how AK might be able to provide material in the event of a disruption. He said the company would be responsive, but he’s more interested in developing partnerships with customers than simply filling a temporary void in the marketplace. “We’re not in the firefighting business. To the extent we can be helpful, we want to be there, but we want to be there for the long run,” he said. Alcoa Aluminum Giant Reports Loss in Second Quarter Aluminum giant Alcoa reported a loss from continuing operations of $2 million during the company’s second quarter. The loss was a big drop from the $94 million profit recorded during the first quarter and the $322 million gain in the second quarter of 2011. Second-quarter revenue for the New York-based producer was $6.0 billion, steady sequentially but down 9 percent compared with second-quarter 2011, primarily due to an 18 percent year-on-year decline in the realized metal price and a 17 percent decline in the alumina price. “Alcoa maintained revenue strength and solid liquidity by driving high profitability in our mid and downstream businesses and by reducing costs and improving performance in our upstream businesses,” said Klaus Kleinfeld, chairman and CEO at the company’s quarterly conference call. “Although aluminum prices are down, the fundamentals of the aluminum market remain sound with strong demand and tight supply. Alcoa is successfully capitalizing on accelerating demand in high-growth end markets such as aerospace and automotive.” Alcoa recorded revenue growth in the second quarter over the first quarter in several end markets, including packaging, up 5 percent; aerospace, up 4 percent; and commercial transportation, up 3 percent. Alcoa continues to project a global aluminum supply deficit in 2012 and reaffirmed its forecast that global aluminum demand would grow 7 percent in 2012, on top of the 10 percent growth seen in 2011. In its global rolled product segment, operating income was down 1 percent sequentially and 4 percent from second-quarter 2011. Compared to the previous quarter, higher volumes and productivity gains offset less favorable price/mix and increased costs. For the first half of 2012, Alcoa’s revenues totaled $12.0 billion, down 5 percent over the first half of 2011. The company’s income from continuing operations in the first half totaled $92 million, down sharply from $635 million in the first half of 2011. Allegheny Technologies ATI Reports Profitable Quarter Allegheny Technologies Inc., Pittsburgh, reported net income of $56.4 million during the company’s second quarter, a decline of 11.8 percent from the same period of 2011. Net sales totaled $1.36 billion, slightly more than the same period last year. Through six months, ATI’s net income totaled $112.6 million, down 6.4 percent from 2011. Net sales of 2.71 billion were up 0.5 percent from last year. “Second-quarter 2012 results were similar to those achieved in the first quarter in spite of a weakening global economy, demonstrating the benefit of ATI’s diversification strategy,” said Rich Harshman, chairman, president and CEO. “We believe that the long-term secular growth trends in our key global markets remain intact. However, demand for many of our products in the second quarter was impacted by slower than expected GDP growth in the U.S. and China, and fiscal and economic uncertainties in Europe. Revenue and operating margins were also impacted by falling prices for most raw materials.” ATI’s sales to the key global markets of aerospace and defense, oil and gas/chemical process industry, electrical energy and medical represented 67 percent of ATI sales for the first six months of 2012. Direct international sales totaled $974 million for the first half and represented nearly 36 percent of sales. “The expected strong growth trend over the next three to five years in the commercial aerospace market remains on track,” Harshman said. “OEM backlogs remain at record levels and production rate ramps remain on schedule. However, we are now seeing some near-term softening in aftermarket spares demand due primarily to reduced profitability of the airlines and global economic uncertainty, which is negatively impacting business and consumer confidence.” Still, Harshman said the supply chain appears to be in balance, with inventory levels being managed aggressively. The company expects this to produce a short-term pause in growth rates until the next advance in build rates. Kaiser Aluminum Kaiser’s Net Income Jumps 75 Percent Kaiser Aluminum Corp., Foothill Ranch, Calif., reported adjusted net income of $20 million during the company’s second quarter, an increase of 75 percent from the same period in 2011. Net sales during the quarter totaled $345 million, a drop from the first quarter but a slight improvement over the previous year’s second quarter. For the first six months, sales totaled $711 million, a 7.5 percent improvement from 2011. Net income of $41 million during the first six months was more than 100 percent better than 2011. “We are very pleased with our second-quarter results which, combined with our first-quarter results, produced record value-added revenue and earnings for the first half of 2012. These results reflect higher volume driven by strong aerospace and automotive demand, improved pricing and greater overall operating leverage. Solid execution, especially at our Trentwood facility that is undergoing a Phase 4 heat-treat plate expansion, also contributed to the record results,” said Jack A. Hockema, president, CEO and chairman. Value-added revenue of $185 million for the second quarter was up 16 percent over the prior-year period. For the first six months, value-added revenue hit a record $380 million, up 20 percent from the comparable 2011 period, reflecting strong year-over-year aerospace demand growth and an improved pricing environment. “Overall, we continue to realize benefits from the growth initiatives and investments we have made to increase capacity, improve efficiency and quality, and expand our product offering. Our record first-half 2012 and last 12 months’ results demonstrate significant progress toward achieving the long-term potential of our platform,” Hockema said. “As we look forward, we believe we are well positioned and have the financial flexibility to support future capacity expansion initiatives as needed to keep pace with expected demand growth for aerospace and automotive applications,” he added. Nucor Profits Off During Second Quarter Nucor Corp., Charlotte, N.C., reported net earnings of $112.3 million during the company’s second quarter, down 62.5 percent from the same period in 2011. The company’s earnings were off 22.6 percent from the first quarter. Nucor's net sales increased 1 percent to $5.10 billion in the second quarter of 2012 compared with the previous quarter, but decreased slightly compared with $5.11 billion in the second quarter of 2011. Average sales price per ton increased slightly from the previous quarter, but decreased 6 percent compared to second-quarter 2011. Shipments to outside customers totaled 5.9 million tons in the second quarter, a slight increase from the previous quarter and an increase of 6 percent over the second quarter of 2011. Total second-quarter steel mill shipments increased 7 percent compared to the same period last year, but declined 1 percent from the previous quarter. Second-quarter downstream steel product shipments to outside customers increased 10 percent over the second quarter of 2011 and 19 percent over the first quarter of 2012. For the first half, Nucor reported net earnings of $257.4 million, down from net earnings of $459.6 million in the first half of last year. Net sales increased 2 percent to $10.18 billion, compared with $9.94 billion in last year's first half. Total tons shipped to outside customers increased 2 percent over the first half of 2011, while the average sales price per ton was unchanged. Overall operating rates at Nucor’s steel mills fell from 79 percent in the first quarter to 76 percent in the second. Steel mill utilization increased from 75 percent in the first half of 2011 to 77 percent in the first half of 2012. Nucor’s DRI project in Louisiana remains on schedule for a mid-2013 startup, though the company is not looking to expand capacity. DiMicco said the world is suffering through massive overcapacity because of economic conditions in the U.S., Europe and Asia, and thus most new capacity is not an effective use of shareholder capital. “Our interest in the current time is in shoring up existing operations and strengthening vertical integration. As far as greenfield opportunities, we have talked in the recent past of another plate mill, but under current conditions in the world that is probably something that’s put on the back burner.” Though the recent two-year $60 billion annual extension of the federal highway bill was a welcome change from the temporary extensions that preceded it, DiMicco said the commitment remains far short of the $400 billion annually that is necessary to rebuild the nation’s infrastructure. “These are investments that must be made and will provide returns many times over during the next 50 years. They must be started now as we are years behind, and we need the millions of jobs and economic growth that are proven to come with real infrastructure investments,” he said. Steel Dynamics SDI’s Net Income Dips in Second Quarter Steel Dynamics Inc., Fort Wayne, Ind., reported net income of $44 million during the company’s second quarter, down more than 60 percent from the same period in 2011. The company’s profits were comparable to the $46 million reported during the first quarter. Net sales totaled $1.9 billion during the quarter, down modestly from both the first quarter and the second quarter of 2011. In the first half of 2012, SDI saw net income of $90 million on net sales of $3.9 billion. By comparison, the company reported net income of $205 million on net sales of $4.1 billion in the first half of 2011. “Overall steel demand remained steady in the second quarter with volumes increasing about 5 percent,” said Chief Executive Officer Mark Millett. “Stability in demand from the automotive, energy, construction equipment and agricultural sectors supported volumes. However, decreases in flat-roll pricing related to both supply-side pressure caused by increased imports and increased domestic capacity resulted in somewhat decreased margins as compared to both the first quarter and certainly the second quarter of 2011—a timeframe when historically high margins were achieved.” Aside from metals recycling and ferrous resources, second-quarter volumes in each of the company’s operating platforms increased when compared to the previous quarter, while consolidated operating income decreased $16 million or 13 percent. The decrease in sequential quarterly operating income was the result of weakness in both ferrous and nonferrous recycled metal margins. The company’s second-quarter margins and operating income for steel operations remained relatively consistent in comparison to first-quarter results. There was a change in the sequential quarterly earnings mix, however, as sheet operations income increased 12 percent based mostly on volume increases and long product operations decreased 10 percent based mostly on pricing declines. In spite of continued nonresidential construction market weakness, the company’s fabrication operations reported positive quarterly operating income for the first time since the first half of 2009, based on increased volumes and better utilization of manpower brought on to support expanding backlogs, executives said. Despite increased volume, first-half 2012 net sales of $3.9 billion were 5 percent less than those achieved in the first half of 2011 and operating income decreased 43 percent. The average selling price per ton shipped in the first half was $864, a decrease of $54 per ton compared to the same period last year. “Looking ahead, we anticipate continued demand in such sectors as automotive, manufacturing, energy and construction equipment, while transportation and agriculture appears to be tempering. We believe order rates could be somewhat uneven throughout the third quarter, as fluctuations in immediate product needs and hesitancy for customers to carry inventory persists,” Millett said. U.S. Steel Corp. Solid Operating Results Reported for Second Quarter U.S. Steel Corp., Pittsburgh, reported income from operations of $330 million in the second quarter, up from $295 million for the first quarter, but down compared with income of $396 million in the second quarter of 2011. Second-quarter 2012 net income totaled $101 million, an improvement over the $219 million loss in the first quarter, which included a $399 million after-tax loss on the sale of U.S. Steel Serbia. Net sales for this year’s second quarter hit $5.02 billion on shipments of 5.4 million tons, down slightly from $5.12 billion in the same quarter last year. “We reported good operating results for the second quarter reflecting positive results from all three of our operating segments,” said U.S. Steel Chairman and CEO John P. Surma, during his recent conference call. “Our Flat-rolled and Tubular segments had solid results considering the very fragile nature of the U.S. economic recovery. U.S. Steel Europe returned to profitability with significantly improved results, but continues to be challenged by the economic situation in the region.” Flat-rolled second-quarter results were comparable to the first quarter. The benefits of an $8 per ton increase in average realized prices more than offset the effects of lower shipments, which reflected the adverse effect of a large increase in flat-rolled imports, the company reported. “While the economic conditions in Europe remained challenging, second-quarter results for our European segment improved significantly compared to the first quarter,” Surma said. “Average realized prices increased due to higher spot market and quarterly contract prices. Operating costs decreased in the second quarter as a result of lower raw materials and energy costs.” Tubular second-quarter income from operations decreased compared to the first quarter. Shipments of 493,000 tons were approximately 7 percent lower than the record levels of the first quarter as distributors rebalanced their inventory to reflect lower forecasts for drilling activity, and the company carried out a planned facility outage, Surma said. Average realized prices of $1,706 per ton remained near first-quarter levels. Commenting on U.S. Steel's outlook for the third quarter, Surma added, “We expect operating results to be positive in the third quarter, but below our second-quarter results, reflecting the continued weakness in the North American, European and emerging market economies. Average realized prices are expected to be lower for all three operating segments with total reportable segment shipments slightly lower than the second quarter. Our Tubular segment is expected to continue its trend of solid operating profits.” U.S. Steel currently is negotiating with the United Steelworkers for a new labor agreement covering most of its domestic operations. The current agreement expires on Sept. 1, 2012. “We anticipate reaching a competitive agreement without a work stoppage,” Surma said. Mon, 01 Oct 2012 17:33:00 GMT f1397696-738c-4295-afcd-943feb885714:8134 http://www.metalcenternews.com/Editorial/CurrentIssue/August2012/tabid/5815/articleType/ArticleView/articleId/8133/Carbon-Plate-Market.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5815&ModuleID=14005&ArticleID=8133 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=8133&PortalID=51&TabID=5815 http://www.metalcenternews.com/Editorial/CurrentIssue/August2012/tabid/5815/articleType/ArticleView/articleId/8133/Carbon-Plate-Market.aspx Buyers Put Plate on the Back Burner 2012 started off strong for U.S. plate suppliers, but the market has lost some momentum as buyers wait for prices to bottom out. While carbon plate remains one of the strongest domestic steel markets, it has lost some steam in recent months. Concerns about the global economy, coupled with downward price pressure from rising imports and declining scrap costs, have prompted service centers and OEMs to hold back on all but the necessary plate purchases. “Demand has been solid across most plate consuming sectors,” including mining, heavy equipment, rail and energy, says Scott Meredith, director of sales and marketing for the Flat Products Group of Nucor Corp., Charlotte, N.C. Ronnie Masliansky, general manager of marketing and product control for ArcelorMittal USA, Chicago, reports that demand for carbon plate during the first five months of 2012 was the strongest it had been since 2008. Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa., places carbon plate demand at 4.7 million tons through May, up 16.3 percent from 4.1 million tons shipped in the first five months of 2011. “However, even these stronger markets are beginning to face headwinds due to a slowing U.S. economy,” Meredith says. The June Institute for Supply Management’s Manufacturing Purchasing Managers’ Index is concerning, says Amy Bennett, principal consultant for Metal Bulletin Research. At 49.7 percent, the PMI indicated a contraction in the manufacturing sector for the first time since July 2009. Nevertheless, the Federal Reserve Board reports that June industrial production was up 0.4 percent compared with May, and up 4.7 percent compared with June 2011. Jeff Simons, vice president of marketing for O’Neal Steel Inc., Birmingham, Ala., predicts plate purchases will rebound soon. “Both demand and prices will probably bump along the bottom for the next four to six weeks before, hopefully, coming back late in the third quarter or early in the fourth quarter,” he says. Among plate’s strongest markets, even wind towers have lost some velocity, say steel executives. The wind tower market is a big consumer of steel as each tower contains several hundred tons of plate. Makers of the power-generating windmills are pausing while they wait to see if federal production tax credits will expire at the end of this year. Low natural gas prices, currently at $2.75-$3.00/MMBtu on the spot market, are depressing demand for wind power and other alternative energy sources. Meanwhile, the strength of the conventional energy sector—which requires heavy equipment and rail cars to move coal and oil extracted from the nation’s shale deposits—is having a positive effect on demand for carbon plate, Masliansky notes. Likewise, the addition and replacement of pipelines used to transport oil and natural gas to consumers is fueling plate orders. “And there is more design and construction going on for nuclear energy plants than there has been in the past 20 to 30 years,” Simon notes. Year to date through May, rail car shipments were up 20 percent versus the first five months of last year. Shipbuilding also grew about 20 percent year on year. Shipments of construction equipment, including exports, were up 9.2 percent in the same comparison, Plummer says. Demand for plate used in bridge construction and other public works projects is likely to get a boost as the effect of the new federal highway bill hits home. Leaders across industries were disappointed that Congress was only able to pass a two-year infrastructure bill, however, rather than a longer-term, more robustly funded measure. Macroeconomic uncertainties continue to weigh heavily on decision-makers in steel, as in most other industrial markets. In the U.S., election-year politicking, frustratingly high unemployment and the lingering effects of the housing crisis continue to make buyers cautious. Internationally, the cooling of the Chinese economy and the Eurozone debt crisis, with its currency implications, stand to raise imports of lower-cost plate. Steve Koch, senior vice president of operations for Reliance Steel & Aluminum Co., Los Angeles, notes that because the U.S. market has been stronger than those in Europe and Asia, the price spreads between domestically produced and imported plate have gotten very wide this year. Because of this disparity, commodity plate imports have picked up significantly from various global regions, as well as specialty plate imports from Europe and South Korea, says ArcelorMittal’s Masliansky. “The impact on the domestic market has been significant. As demand has slowed, imports have picked up steam and caused price erosion in the spot market.” According to prices published in American Metal Market, carbon plate averaged $860 per short ton in July, down about 4 percent from $896 in June and down 8 percent from this year’s peak of nearly $935 per ton in January. “Perhaps the domestic mills didn’t react as quickly as they should have in bringing down prices,” Koch says. But even with the price declines already announced and further cuts likely in light of declining ferrous scrap prices, plate imports have shown no signs of abating. Foreign mills are bringing in high-quality plate at very aggressive levels, he says. “Both the number of offers and the number of countries they are coming from are increasing. Imports are even coming in from Japan, which hasn’t been exporting plate for a while.” Based on the Commerce Department’s most recent Steel Import Monitoring and Analysis data, year-to-date cut plate import permit applications for offshore companies were up 52 percent through June versus the like period in 2011. The cut plate import share was 22.5 percent in May, up from 16.9 percent a year earlier, Plummer reports. “We are keeping an eye on the imports and we’ll take the appropriate action, both commercially and politically, if we see this surge continue unrestrained,” said John Ferriola, Nucor’s president and chief operating officer, during his recent second-quarter conference call with analysts and investors. Now that the domestic plate mills have lowered spot prices and the price spreads have narrowed to $20 to $30 per ton, as opposed to $100 per ton, service centers that have been ordering imports, and taking on the risky long lead times, are likely to back off, Koch says. Inventories, though lower than past levels, appear adequate to meet current demand. The Metals Service Center Institute reports that U.S. service centers had 3.1 months of plate inventory on hand at the end of June, the highest level since December 2011. Unlike in the steel sheet market, mills have not added much new domestic plate production capacity, though a few have made related investments. In May, ArcelorMittal commissioned a $60 million heat-treat line at its 160-inch plate mill in Burns Harbor, Ind., to increase its capacity to produce normalized plate, quench plate, and quench and tempered plate. SSAB Americas recently commissioned a new quench and temper line in Mobile, Ala., and is considering adding more capacity at that facility. Meanwhile, Nucor has shelved plans to build a new plate mill, given the current uncertainty in the global business climate, said Daniel DiMicco, chairman and chief executive officer, during the company’s second-quarter conference call. Some of the new heat-treated plate capacity appears to be finding its way into mill depot stocks at service center pricing. With both ArcelorMittal and SSAB opening new Houston depots, the line between mills and services centers seems to be blurring, says Koch at Reliance Even mill lead times from rollings have shortened from the normal four to six weeks to as quick as two weeks in some cases, Plummer says, indicating that there is excess material in the marketplace. Given the ample supply of both domestic and foreign plate, service centers remain very cautious about their buys. MBR’s Bennett predicts a possible pickup in plate purchasing in late August or early September, especially if global scrap prices increase as expected as the Turks go back to work after Ramadan. “But the big question is how long that will last before the usual seasonal slowdown hits late in the fourth quarter,” she says. Mon, 01 Oct 2012 17:25:00 GMT f1397696-738c-4295-afcd-943feb885714:8133 http://www.metalcenternews.com/Editorial/CurrentIssue/August2012/tabid/5815/articleType/ArticleView/articleId/8132/MCN-Case-Study-High-Steel-Service-Center-LLC.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5815&ModuleID=14005&ArticleID=8132 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=8132&PortalID=51&TabID=5815 http://www.metalcenternews.com/Editorial/CurrentIssue/August2012/tabid/5815/articleType/ArticleView/articleId/8132/MCN-Case-Study-High-Steel-Service-Center-LLC.aspx High Brand Awareness Promoting its HIGHSL panel-flat product, this Lancaster, Pa., service center is using an aggressive branding strategy to distinguish its steel from competitors’ commodities. By Tim Triplett, Editor-in-Chief One of the biggest challenges for service centers selling steel is differentiating their product. If everyone basically offers the same commodity, the contest becomes a matter of outservicing the competition and, too often, outpricing them. High Steel Service Center LLC in Lancaster, Pa., is determined to break that cycle by offering the market a product that is truly different. Established in 1978, High Steel Service Center is a processor and distributor of carbon steel flat-rolled and general line products, stainless flat-rolled and aluminum flat-rolled products to customers in Pennsylvania, Maryland, Delaware, Virginia, West Virginia, New Jersey and New York. The company recently invested $10 million in a new coil processing line that combines two Bradbury roller levelers with a stretcher leveler from Red Bud Industries to produce what the company claims is the flattest steel sheet in the industry. High Steel Service Center executives are so confident in their product that they have applied for a trademark and are marketing it under the brand name: “HIGHSL: Panel-Flat that Stays Flat.” The company says it is the only service center in its geographic footprint with this combination of leveling technology. “HIGHSL branding differentiates us from our competition. It supports a strategy of offering a unique value-added process to our customers.” says Jim Cunningham, vice president of sales and marketing. “When customers call and ask for HIGHSL, they know they will get a product that allows their equipment to cost-effectively accomplish its task.” “High Steel Service Center offers a unique competitive advantage to its customers by eliminating their number one challenge: problems relating to flatness and stress removal. At the same time, the company improves its customers’ product quality, increasing their manufacturing throughput and helping to reduce their operating costs,” says Rick Bennett, High Steel Service Center president. The proliferation of high-tech cutting equipment in the marketplace has created a need for flatter steel sheet. Coiled steel retains shape memory and, even after conventional leveling, cut parts can bow and twist from internal stresses that remain in the metal. “This is a very big problem for fabricators running high-speed equipment, such as laser, plasma, and waterjet cutters. It slows down their operations and can damage the equipment,” Cunningham notes. To achieve the flattest steel possible, High Steel Service Center equipped its line with two Bradbury roller levelers. One, a heavy-gauge roller leveler, handles ¼-inch through ½-inch material up to 72 inches wide. The second, a lighter-gauge leveler, features Bradbury’s new e-Drive technology for lighter-gauge coils from 16 gauge to ¼-inch up to 72 inches wide. Conventional levelers use one drive to power all the rolls. Bradbury’s e-Drive uses two drives, the first controlling the entry rolls and the second controlling the exit rolls. Bradbury research into standard roller leveler design revealed that as the material was being forced through the leveler rolls from the front, it was actually “bunching up” internally, reducing the stretching process. By splitting the gearbox into two independent drives, the exit rolls now concentrate more on pulling the material out of the leveler, making it more effective, the company says. Taking the process a step further, High Steel Service Center opted to include a stretcher leveler from Red Bud Industries in the line. After the metal passes through one of the Bradbury roller levelers, it moves into the stretcher where it is gripped and stretched at enormous forces. By stretching 100 percent of the material beyond its yield point, stretcher leveling relieves all the internal stresses and leaves the material truly flat. “The stretcher at the end gives us the capability to offer to our customer base a product that is second to none,” Bennett says. Fabricators have long considered coping with bad steel just an unavoidable part of doing business. That’s why they should be receptive to the HIGHSL brand, Cunningham says. “There is a greater awareness among fabricators today that they do not have to live with the quality issues of the past. HIGHSL offers a uniqueness that allows them to improve their efficiencies, their throughput and ability to produce a higher-quality product.” “Customers have confirmed that this is the flattest material they have ever received, both before and after laser processing. Most importantly, they have confirmed that it absolutely reduces their operating costs,” Bennett adds. Another important component of High Steel Service Center’s brand strategy is to become a master distributor of HIGHSL. “One of our goals is to sell to other service centers that would like to sell our branded product to their customer base. That is part of why the branded product is so important to us,” Cunningham says. The new line has an annual capacity of about 120,000 tons. The company plans to run the line continuously to produce product for its own floor, as well as for the inventories of other distributors. Green philosophy High Steel Service Center is one of a large group of companies still privately held by the High family, with other holdings in construction, fabrication, real estate, hotels, and other industrial markets. They all put a high value on sustainability and environmental stewardship, “with a triple bottom line approach that addresses people, planet, and profit,” says Cunningham. Producing totally flat steel dovetails nicely with that philosophy as it helps customers reduce scrap and waste. The company also has installed energy efficient lighting, recycles skids and packaging, and manages its truck fleet to avoid backhauling empty, among other green practices. “We believe it’s just the right thing to do, and it gives High a competitive advantage. We strive to build trustworthy relationships and be transparent and forthright in everything we do,” Cunningham says. Mon, 01 Oct 2012 17:21:00 GMT f1397696-738c-4295-afcd-943feb885714:8132 http://www.metalcenternews.com/Editorial/CurrentIssue/August2012/tabid/5815/articleType/ArticleView/articleId/8131/Second-Quarter-Report-Outlook-Service-Centers.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5815&ModuleID=14005&ArticleID=8131 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=8131&PortalID=51&TabID=5815 http://www.metalcenternews.com/Editorial/CurrentIssue/August2012/tabid/5815/articleType/ArticleView/articleId/8131/Second-Quarter-Report-Outlook-Service-Centers.aspx Sales up, Income Down Service centers report some softening from the first quarter in their latest conference calls. A.M. Castle & Co. Castle Reports Loss in Second Quarter A.M. Castle & Co., Oak Brook, Ill., reported a $3.0 million loss for the company’s second quarter, compared to net income of $3.7 million during the same quarter in 2011. Net sales for the quarter totaled $329.4 million, a 16.5 percent jump from last year. “Consolidated gross material margins of 26.9 percent for the second quarter of 2012 were more than 70 basis points higher than the prior-year quarter. And, while we experienced a slight softening in demand when compared to the first quarter, I was pleased with our gross margin performance,” said Scott Stephens, Castle’s interim president and CEO during the company’s quarterly conference call with investors and analysts. For the first half, Castle’s net sales totaled $692.3 million, 22.4 percent better than the first six months of 2011. The company experienced a net loss of $7.3 million through the first half compared to net income of $6.4 million a year ago. In the company’s Metals segment, second-quarter net sales of $297.2 million were 17.8 percent higher than last year, primarily due to the acquisition of Tube Supply in December 2011. Metals segment tons sold per day, excluding Tube Supply, were up 1.1 percent from the second quarter of 2011, primarily driven by growth in the heavy equipment and oil and gas sectors. Sequentially, tons sold per day were 4.1 percent lower than the first quarter of 2012 because virtually all key end-use markets, with the exception of oil and gas, experienced softer demand as customers adjusted inventory levels due to a more cautious outlook. “We will remain focused on gross material margin management, operating efficiency and working capital execution during the second half of the year. Given our customers’ cautious outlook for the balance of 2012 and assuming no further softening of demand, we expect operating results to be comparable to levels achieved in the second quarter,” said Stephens. The company retained an executive recruiting firm to assist in the identification of a new CEO. Stephens, the company’s chief financial officer, has been serving as interim CEO since the departure of Michael Goldberg in June. Castle expects to appoint a new CEO by the end of the third quarter. Metals USA Sales Grow 6% in Second Quarter Metals USA Holdings Corp., Fort Lauderdale, Fla., reported net sales of $537.1 million during the company’s second quarter, a 6 percent improvement from the same period a year ago. Net sales were up 2 percent from the first quarter of 2012. The service center company reported net income of $19.0 million, a modest decline from the $21.5 million reported in last year’s second quarter. Net income improved 17 percent compared to the first quarter. "We are very pleased to achieve yet another quarter of strong results. Despite a persistently weak pricing environment in the second quarter, Metals USA delivered sequential growth, generating more revenues and profit in Q2 than in the first quarter," said Chairman, President and CEO Lourenço Gonçalves during the company’s quarterly conference call with investors and analysts. Metals USA’s net sales for the first six months topped $1.06 billion, up 13 percent from net sales of $937.9 million for the first six months of 2011. Net income for the first half totaled $35.3 million, up modestly from the net income of $33.9 million for the first six months of 2011. Metals USA’s metal shipments hit 413,660 tons for the second quarter, up 15 percent from the second quarter last year. Metal shipments for the first six months of this year totaled 816,452 tons, up 12 percent from the same period last year. Toll processed tonnage totaled 52,470 tons during the second quarter, an increase of 24.7 percent from the second quarter of 2011. The company toll processed 92,719 tons during the first six months of 2012, up 7.0 percent from the first six months last year. Though the first-quarter purchase of Gregor Technologies was the company’s only deal of the first half, Metals USA remains committed to growth through acquisition. Unlike other service centers, the company has not looked outside the U.S. to expand. Gonçalves said the lackluster returns of some Chinese investments and the obvious issues in Europe validate the company’s strategy. “We will stick to acquisitions in the U.S. We are going into an extended period of difficulty in this country, but I believe brighter times are closer to us. We are in good shape here; we believe it’s the best market to be present.” On the pricing front, the Metals USA chief believes the higher figures the mills have been pursuing are unlikely to stick. “We don’t see a strong upward price trend, mainly due to the appreciation of the U.S. dollar against the euro and the Brazilian real. The adverse exchange rate no longer supports the significant tonnage exported by the U.S. throughout 2011 and the first months of 2012. Some domestic capacity has been taken off line through the recent facility shutdowns by bankrupt RG Steel. Gonçalves does not expect further capacity reductions as a result of a labor issues at ArcelorMittal. “We won’t see a strike at ArcelorMittal, but if any production is taken out, that would be great. It would make the supply side a little leaner and allow prices to get a little stronger. That’s the only thing missing in Q3, the ability to increase prices to where they should be.” Reliance Quarterly Sales, Income Increase Reliance Steel & Aluminum Co., Los Angeles, reported net income of $108.8 million during its second quarter, a 10 percent improvement from the second quarter of 2011 but down 6 percent from the first quarter. Sales for the second quarter totaled $2.21 billion, up 8 percent from the second quarter of 2011 but 3 percent behind the first quarter. For the first six months, Reliance’s net income totaled $225.0 million, an 18 percent improvement on 2011. Net sales hit $4.5 billion, up 14 percent from last year. “We were pleased with our second-quarter results, which were in line with our expectations, although general economic uncertainty in the marketplace along with declining costs for most all of our products negatively pressured both volumes and pricing,” said David H. Hannah, chairman and CEO. “Underlying demand slowed slightly from the first quarter, but still represents solid improvement when compared to the 2011 periods. The declines in the costs of our products were supply, not demand, driven, as underlying cost inputs at the producer level decreased, imports were plentiful, and domestic overcapacity persisted.” Reliance’s tons sold for the second quarter were up 10 percent from second-quarter 2011, but down 2 percent from the first quarter. The average price per ton sold in the second quarter was down 2 percent compared to both second-quarter 2011 and the first quarter. During the second quarter, carbon steel sales represented 52 percent of the company’s net sales; aluminum sales were 15 percent; stainless steel sales were 15 percent; alloy sales were 11 percent; toll processing sales were 2 percent; and other sales were 5 percent. “We continue to see strength in energy, aerospace, farm and heavy equipment, and auto, and expect continued growth in these markets,” Hannah said. Though imports reached their highest levels since 2008 during the first half, they likely to be less of a factor going forward, said Reliance President and Chief Operating Officer Gregg Mollins. The spread between the U.S. price and the world price, even with China’s market deterioration, is no longer attractive to buyers. “I would not expect to see third-quarter or fourth-quarter import volumes anywhere near what they were in the first and second quarter this year. I think we’re seeing them going down, and thank God for that because they were at ridiculous levels,” he said. Reliance made two acquisitions in the first half, adding National Specialty Alloys and McKey Perforating, plus two strategic asset purchases. The company also expanded into Australia through its newly formed subsidiary, Bralco Metals. Still, the acquisition front has been relatively quiet in the service center sector, which Hannah chalked up to the overall operating environment. “Unless somebody has to sell today, their thinking is ‘let’s just wait until our numbers look a little better and some of this uncertainty goes away.’ Uncertainty in the market just doesn’t bode well for people making big decisions, whether it’s buying or selling,” he said. Reliance officials expect pricing on most primary materials, carbon, aluminum and stainless, to reach bottom during the third quarter, with an uptick possible at the end of the quarter. Mon, 01 Oct 2012 17:09:00 GMT f1397696-738c-4295-afcd-943feb885714:8131