http://www.metalcenternews.com RSS feeds for Metal Center News 60 http://www.metalcenternews.com/Editorial/CurrentIssue/November2012/tabid/5916/articleType/ArticleView/articleId/9154/Third-Quarter-Report-and-Outlook.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5916&ModuleID=14146&ArticleID=9154 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=9154&PortalID=51&TabID=5916 http://www.metalcenternews.com/Editorial/CurrentIssue/November2012/tabid/5916/articleType/ArticleView/articleId/9154/Third-Quarter-Report-and-Outlook.aspx ‘Challenging Conditions’ In their recent third-quarter conference calls with analysts and investors, most mill executives reported disappointing results compared to last year. AK Steel Mill Suffers Losses for Three Quarters AK Steel, West Chester, Ohio, reported a net loss of $60.9 million for the third quarter of 2012, compared to a net loss of $3.5 million for the third quarter of 2011. Net sales for the third quarter of 2012 totaled $1.46 billion on shipments of 1,363,500 tons, compared to net sales of $1.59 billion on shipments of 1,368,800 tons for the year-ago third quarter, and net sales of $1.54 billion on shipments of 1,335,800 tons for the second quarter of 2012. The company said its average selling price for the third quarter was $1,073 per ton, a 7 percent decrease from both the second quarter of 2012 and the third quarter of 2011. The lower average selling price for the third quarter 2012 compared to the second quarter of 2012 was primarily due to lower spot market prices for carbon steel products, reduced raw material surcharges and a lower value-added product mix. “Challenging domestic and global economic conditions continue to weigh on shipping volumes and prices,” said James L. Wainscott, chairman, president and CEO of AK Steel during his recent conference call with analysts and investors. “Additionally, while we expect to enjoy lower raw material costs in the future, we are still working through some higher cost raw material inventories.” For the first nine months of 2012, the company reported a net loss of $796.9 million, versus net income of $38.3 million for the corresponding 2011 period. Net sales for the first nine months of 2012 totaled $4.51 billion, compared to $4.96 billion for the first nine months of 2011. Shipments for the first nine months of 2012 were 4,025,200 tons, compared to 4,288,900 tons for the first nine months of 2011. Alcoa Price Declines Impact 3Q Revenue Aluminum maker Alcoa, New York, reported a loss from continuing operations of $143 million during its third quarter, a downturn from the $172 million in net income earned in the same quarter last year. This followed a loss of $2 million during the second quarter. Alcoa cited environmental remediation of the Grasse River in New York State and the settlement of a civil lawsuit filed by Aluminium Bahrain for the quarterly loss. Without those charges, the company would have reported net income of $2 million during the quarter. Third-quarter 2012 revenue totaled $5.8 billion, down 9 percent compared with third quarter 2011, primarily due to a 17 percent decline in the realized metal price and a 20 percent decline in the realized alumina price, company officials said. “Markets seem to be driven more by headlines than fundamentals right now, but Alcoa remains focused on the things within our control,” said Klaus Kleinfeld, chairman and CEO, during the company's quarterly conference call with investors and analysts. “We're capitalizing on pockets of strong growth and achieving record profitability in our mid and downstream businesses. We're improving performance in the upstream while optimizing our assets, and across the board we're driving productivity gains.” Amid challenging market conditions, Alcoa's upstream businesses achieved significant performance improvement in the third quarter, delivering $98 million of combined sequential operational improvements across the Alumina and Primary Metals segments as higher volume, improved price and mix, and productivity gains more than offset cost headwinds, company officials claimed. In what is traditionally a weaker quarter, Alcoa's midstream and downstream businesses turned in strong performances. Despite weakness in Europe, its Global Rolled Products business achieved record third-quarter after tax operating income of $98 million, up 63 percent compared to the 2011 period. The year-on-year improvement was driven by better price and mix, higher volume and strong productivity gains. In Alcoa's global end markets, positive growth continues, particularly in the aerospace market, where the company sees 13-14 percent year-on-year growth, and in the automotive market, where the company has raised its North American 2012 forecast by 1 percent. Alcoa has moderated its 2012 global aluminum demand forecast to 6 percent, down from 7 percent, due to slowing in China. The aluminum market grew 13 percent in 2010, and 10 percent in 2011, and is well ahead of the 6.5 percent compound annual growth rate needed to meet Alcoa's projection of a doubling of aluminum demand 2010 to 2020. Allegheny Technologies ATI Sales Suffer from Global Uncertainties Allegheny Technologies Inc., Pittsburgh, reported net income for the third quarter of $35.3 million on sales of $1.22 billion, down from income of $62.3 million on sales of $1.35 billion in last year’s third quarter. For the first nine months, ATI reported net income of $147.9 million on sales of $3.93 billion, down from income of $182.6 million on sales of $3.93 billion in the first three quarters last year. “Continuing uncertainty regarding global economic conditions impacted our third-quarter 2012 results,” said Rich Harshman, chairman, president and CEO during his quarterly conference call. “We are seeing conservative inventory management throughout the supply chains of most of our major end markets. These actions appear to be driven by concerns about the U.S. election and resolution of the U.S. ‘fiscal cliff’, and uncertain economic trends in China, Europe, and Japan. We believe that as these uncertainties begin to be resolved, demand will improve for our GDP-sensitive products and strong secular growth trends will resume in our key global markets.” ATI’s sales to the aerospace and defense market in the first nine months totaled $1.25 billion or about one-third of its business. “The current economic conditions have resulted in softening of demand from the jet engine aftermarket and a cautious approach to managing inventory in the supply chains of both airframe and jet engine OEMs,” Harshman said. “In spite of these short-term headwinds, we see strong growth in demand for our products from the commercial aerospace market over the next three to five years.” Company officials also continue to see long-term growth opportunities from the oil and gas/chemical process industries. “Our downhole oil and gas products remain in high demand because directional and horizontal drilling rates are holding up, even as the total rig count is declining,” Harshman said. ATI expects demand for standard stainless steel sheet and plate to continue at low levels in the fourth quarter as a result of weak GDP growth in the U.S. and aggressive inventory management actions throughout the supply chain. In addition, base prices for most grades of standard stainless products are at historically low levels due to weak demand and high levels of Asian imports. “We believe inventory levels of these products throughout the supply chains are lean and base prices are at unsustainable levels. Therefore, our view is that as global economic conditions begin to improve, both demand and base prices will begin to improve,” Harshman said. He added: “We expect business conditions in the fourth quarter to remain challenging. Except for the U.S. election, meaningful progress on the primary reasons for the current global economic uncertainty—the possible U.S. ‘fiscal cliff’, the Eurozone debt crisis, and slower growth in China—is not expected until the first half of 2013. Therefore, we expect continued soft demand and aggressive inventory management by most of our customers to persist through the fourth quarter 2012.” Carpenter Technology Strong Quarter for Specialty Metals Specialty steel maker Carpenter Technology Corp., Wyomissing, Pa., reported net income of $39.2 million for its first fiscal quarter ended Sept. 30, up from $23.8 million earned in the comparable quarter last year. Net sales for the quarter totaled $544.9 million, up 32 percent from the prior year. “Our strong first-quarter results demonstrate that we are continuing to execute well against our strategic plan,” said William A. Wulfsohn, president and CEO. “While there are some areas, particularly in lower value products, where customer demand has softened recently, our overall business continues to be well positioned in attractive end markets with strong demand for our ultra-premium and premium products. This is evident in our strong top line growth, and continuing positive spread between our revenue and volume growth rates. Results for Latrobe Specialty Steel, which Carpenter acquired seven months ago, remain strong. “The teams are doing an outstanding job delivering operational synergies from the combined operation that will lead to higher volumes, improved costs and a richer mix. The first new VAR furnace recently began operation with two more to come online in the near future. We are accelerating use of the Latrobe assets for additional premium products, which will enable us to continue improving mix and our average mill profit per pound, Wulfsohn said. The company expects the next quarter to be equally strong, keeping it on track to achieve its full-year goals. “Strong customer demand for the ultra-premium and premium parts of our product line, combined with our large backlog, is consuming our full available premium capacity,” he added. Kaiser Aluminum Aerospace, Auto Drive Aluminum Gains Kaiser Aluminum Corp., Foothill Ranch, Calif., reported net income of $29 million for the third quarter, up from $4 million in third-quarter 2011. For the first nine months, Kaiser’s net income totaled $77 million, up from $19 million in the prior-year period. “We are very pleased with our third-quarter results as we continued to benefit from strong aerospace and automotive demand, improved pricing and increased overall operating leverage,” Jack A. Hockema, president, CEO and chairman, told investors and analysts. “In addition, we have begun to realize steady improvements in underlying manufacturing cost performance across our platform, especially in the rod and bar value stream at our Los Angeles and Kalamazoo, Mich., facilities. Solid execution at our Trentwood facility during the Phase 4 heat-treat plate expansion also has contributed to our strong results.” Despite these strong results, the company began to experience a seasonal slowdown in the third quarter and expects the effect to be more pronounced in the fourth quarter as a result of weakness in service center orders and year-end destocking. “Given the seasonal nature of this activity, however, our overall outlook for the second half of 2012 is largely unchanged, with value-added revenue down 5-10 percent from the first-half pace but up 10 percent from the second half of 2011. “Looking ahead to 2013, we anticipate continued growth in our overall value-added revenue and margin, driven by strong demand for aerospace and automotive applications,” Hockema added. “While our outlook for the automotive end market also remains strong, driven by higher build rates and increasing aluminum extrusion content, the outlook for our general engineering applications remains tempered as a sustainable recovery in the general industrial economy continues to be challenged by U.S. and global economic uncertainty.” Nucor Steel DiMicco: Earnings Impacted by Imports Nucor Corp., Charlotte, N.C., reported net earnings of $110.3 million for the third quarter of 2012— comparable to the $112.3 million earned in the previous quarter, but down from the $181.5 million earned in third-quarter 2011. In the first nine months, Nucor reported consolidated net earnings of $367.7 million, down from $641.1 million earned in the first three quarters last year. Nucor's sales decreased 6 percent to $4.80 billion in the third quarter, down from $5.10 billion in the previous quarter. Sales were down 9 percent compared with $5.25 billion in last year’s third quarter. Tons shipped to outside customers totaled 5,768,000 in the third quarter, a 3 percent decrease from the previous quarter and a slight decrease from third-quarter 2011. The average sales price per ton was down 3 percent from the previous quarter and 8 percent from the previous year. Nucor mills operated at 71 percent of capacity in the third quarter, down from 76 percent in the second quarter. For the first nine months, Nucor's net sales decreased 1 percent to $14.98 billion, compared with $15.19 billion in the comparable period last year. Total tons shipped to outside customers were up 1 percent, while the average price per ton was down 3 percent. Company officials said the third-quarter results reflect a continuing trend of reduced operating profits, most significantly in sheet and plate, primarily the result of very high import levels. Pointing to U.S. Census Bureau data, Nucor Chairman and CEO Dan DiMicco noted that 2012 steel imports are on pace to reach 27.7 million short tons in 2012. This represents an increase of 21 percent from 2011, and is 43 percent higher than 2010 import levels. In addition, U.S. sheet steel markets have been negatively impacted by new domestic supply that began ramping up production in 2011. “Such increases are totally inconsistent with a domestic economy that is barely growing, as well as a U.S. steel industry capacity rate mired in the range of 70 percent,” he said. Construction is going well on Nucor’s 2,500,000-ton direct-reduced-iron facility in Louisiana. The majority of the equipment will arrive in 2012, with startup on track for mid-2013. Looking ahead, the Nucor management team pointed to some challenges. In addition to high import levels and excess domestic sheet supply, slowing economic growth both domestically and globally is expected to be a negative factor through the end of the year. Volatility in scrap prices, together with a combination of political and economic uncertainty in global markets, is affecting steel buyer confidence and therefore supply-chain stocking levels. Steel Dynamics SDI Reports Sales, Earnings Declines Steel Dynamics Inc., Fort Wayne, Ind., reported net income of $12.8 million on net sales of $1.7 billion in the third quarter, down from income of $43.3 million on net sales of $2.0 billion in the same period last year. The third quarter was also down from the previous quarter, when the company earned $44.5 million on net sales of $1.9 billion. For the nine months ended Sept. 30, SDI’s income totaled $103.0 million on net sales of $5.6 billion. In comparison, the company earned $247.9 million on net sales of $ 6.1 billion in the first three quarters last year. “Relative to overall market demand, our operating performance was commendable for the third quarter,” said SDI CEO Mark Millett. “The U.S. market in general remains tepid, as uncertainty surrounding the strength of Europe, growth in China, and the near-term U.S. economic and political environment continues to weigh heavily on customers’ purchasing decisions. Aside from our fabrication operations, this reluctance in customer buying resulted in reduced selling volumes across our major operating platforms.” Compared to the second quarter, operating income from the company’s steel platform was down $30 million, primarily caused by reduced volumes, most notably within the special-bar-quality arena. “Earlier customer estimates of robust growth have not been fully realized during the year, resulting in excess SBQ inventory build throughout the customer supply chain,” Millett said. “Inventory realignment seems to have begun later in the second quarter, and could continue through the remainder of 2012. However, we believe there is steady underlying demand that will support volumes as the destocking subsides.” Despite a challenging environment and decreased volumes, the company’s metal recycling platform saw ferrous operating margins improve as metal spreads expanded 23 percent. But the ferrous scrap market continues to be oversupplied, as the export market and U.S. steel mill utilization rates have moderated. “However, we believe an inflection point has been reached and ferrous scrap pricing is likely near a bottom,” Millett said. Looking ahead at end-use markets, he reported softening in agriculture, transportation and certain areas within energy related to natural gas exploration. Automotive and manufacturing appear strong and residential construction has shown incremental improvement. “But we believe volumes could continue to be challenged in the fourth quarter, as fluctuations in immediate customer needs and hesitancy for customers to carry inventory persists,” Millett said. Service Center Third-Quarter Results Metals USA Shipments Increase 12 Percent Metals USA Holdings Corp.. Fort Lauderdale, Fla., reported net sales for the third quarter of $483.7 million, down slightly from sales of $492.3 million in third-quarter 2011. Net income for the third quarter totaled $13.7 million, down from net income of $16.7 million in last year’s third quarter. Third-quarter 2012 shipments of 381,000 tons were 11.7 percent higher than shipments in the prior-year period. Metals USA’s net sales for the first nine months of 2012 totaled $1.54 billion, up 8.1 percent from sales in the first three quarters last year. Net income for the first three quarters totaled $49.0 million, down slightly from $50.6 million in the same period in 2011. Shipments for the first nine months totaled 1,197,000 tons, 12.0 percent higher than the comparable period last year. “Despite a third quarter characterized by a weak global business environment and no meaningful improvement in the domestic economy, Metals USA performed well and yet again delivered strong results,” said Lourenço Gonçalves, Metals USA chairman, president and CEO. “Our achievement of a 12 percent increase in year-over-year shipments, which partially offset price weakness and related margin compression, was further evidence of our growth momentum.” Metals USA claims to continue gaining market share with its emphasis on value-added processing and maintaining healthy inventories. “We have adjusted our inventory mix for a fourth quarter that we do not expect to be worse than the third quarter, other than the normal impact of slower seasonal activity around Thanksgiving and year-end holidays,” Gonçalves said. Reflecting the company’s progress, its board of directors recently authorized the initiation of a regular quarterly cash dividend payable on its common stock. Reliance Steel & Aluminum Sales Dip ‘In Line with Expectations’ Reliance Steel & Aluminum Co., Los Angeles, reported sales of $2.06 billion in the third quarter, down 3.9 percent from third-quarter 2011, and down 7.0 percent from the previous quarter. Net income for the quarter totaled $98.1 million, up 15.5 percent from last year’s third quarter, but down 9.8 percent from second-quarter 2012. Tons sold in the quarter were up 2.0 percent from last year, but down 3.5 percent from last quarter. “Overall demand in the third quarter was in line with expectations after taking into account normal seasonal fluctuations and one less shipping day compared to the prior quarter and same period last year,” said David H. Hannah, chairman and CEO of Reliance. Driven mostly by increased sales of stainless steel and aluminum products, as well as contributions from its 2011 and 2012 acquisitions, Reliance’s total tons sold increased 2.0 percent, compared to last year’s third quarter. Additionally, its sales related to the auto industry through its toll processing operations were up significantly compared to last year. “However, our net sales reflect downward pressure on pricing, as our average price per ton sold fell 3.8 percent sequentially and 6.3 percent year-over-year. While we expected economic uncertainty to continue as we entered the third quarter, price decreases in the quarter were greater than expected for all of our products,” Hannah said. For the nine months ended Sept. 30, Reliance reported net sales of $6.55 billion, up from $6.1 billion in the first three quarters of 2011. Its net income for the period was $323.1 million, up from $275.9 million last year. On a year-to-date basis, Reliance’s tons sold were up 8.5 percent, operating income was up 13.7 percent and net income was up 17.1 percent. Commenting on various markets, the Reliance management team noted that relative strength in aerospace, energy, farm and heavy equipment, and auto continue to offset weakness in non-residential construction. Commercial aerospace, consistent with the first half of 2012, continues to perform well, led by strength in both demand and pricing. Heavy industry performed well in the third quarter, albeit at a slower pace than the first half of 2012, due partly to increasingly conservative inventory management among industry OEM’s, as well as a general slowing in the industrial economy. Automotive, supported by the company’s toll processing businesses in the U.S. and Mexico, exhibited robust demand in the third quarter. Nonresidential construction continued to show signs of a recovery, although at significantly reduced demand levels from its peak in 2006. Consistent with the first half of 2012, North American industrial construction related to manufacturing and energy continued to exhibit the most improvement. The company expects that global economic uncertainty will continue to impact the industry in the fourth quarter. Carbon steel prices are still fragile, while stainless and aluminum prices are anticipated to increase slightly. Reliance completed the acquisitions of GH Metal Solutions Inc. and Sunbelt Steel Texas, LLC, during the third quarter. Thu, 03 Jan 2013 19:54:00 GMT f1397696-738c-4295-afcd-943feb885714:9154 http://www.metalcenternews.com/Editorial/CurrentIssue/November2012/tabid/5916/articleType/ArticleView/articleId/9153/MCN-Case-Study-Triad-Metals-International.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5916&ModuleID=14146&ArticleID=9153 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=9153&PortalID=51&TabID=5916 http://www.metalcenternews.com/Editorial/CurrentIssue/November2012/tabid/5916/articleType/ArticleView/articleId/9153/MCN-Case-Study-Triad-Metals-International.aspx ‘We're Not in the Steel Business, We're in the Moving Business’ This long products distributor achieved “consolidation of motion” by designing a combination sawing and material-handling system at its new Indiana processing center. By Dan Markham, Senior Editor As a supplier of minimill long products, Triad Metals International needs only a few specialized pieces of equipment. But when the service center was laying the groundwork for its expansion into Columbia City, Ind., management didn’t see the new 180,000-square-foot facility as simply a place to house some saws. The Pittsburgh-based service center company envisioned an operation where its sawing capabilities would be blended with a material-handling system designed to optimize every pound of steel that moves through the place. “I learned in 1994 with our first warehouse that you’re not in the steel business, you’re in the moving business,” says Ron Hammond, Triad’s co-owner and CEO. “If I can’t take material and unload it so somebody else can pick it up and reload it, I’m out of business.” Triad, ranked the 31st largest service center company in North America in the Metal Center News Top 50, is definitely in business. Its new warehouse in Columbia City, opened last year, was its third service center and fifth processing location, in addition to other divisions outside steel distribution. Designing the facility from the ground up, Triad had the opportunity to put its emphasis on moving material to optimal effect. Rather than hiring separate companies to install the cutting equipment and the material-handling lines, Triad contracted with Behringer Saws Inc., Morgantown, Pa., to design both. Behringer’s task was to develop a material-handling system that would minimize the manual handling of bars and beams while maximizing the production of the band saws. “Like most companies nowadays, we are always looking for higher throughput rates. We looked at what we were trying to accomplish and designed our processing setup around that. We weren’t going to buy the equipment first and just see how it fit into our new building,” says Mike Benlock, operations manager for Triad Metals. Triad’s custom-fabricated material-handling system includes more than 400 feet of conveyors and 23 specialized cross-transfer legs, supplied by Steel Storage Systems Inc., Commerce City, Colo. This allows material to be loaded a single time, with limited, crane-free handling throughout the processing stage. The system incorporates three Behringer band saws. The 800/1204 saw can be used to cut beams up to 70 feet long and 44 inches wide. It is equipped with a special long-length measuring system to facilitate the extra-long beams being cut. A cambering machine and an L.L. Brown T-splitting machine also are integrated into the system. Triad is able to move the beams on transfer arms from the saw directly to the T-splitter without using any of the company’s four cranes. Across the floor, and working in the opposite direction, is Behringer’s 540A band saw and 310/403GA miter saw. The 540A is a fully automated machine with a 3-meter shuttle vice, which Triad uses to bundle-cut various minimill products such as angles, channels, flat bars and rounds. One of the primary uses for the 310/403GA miter saw is to bundle cut tubing. The saw incorporates automatic feeding and automatic mitering angles in two directions. Each of the two lines feed toward 210-foot trucking bays on opposite ends of the facility. Triad’s production schedule calls for virtually all of the processing to be done during the company’s third shift. Most of the material is shipped out the next day. In fact, floor personnel will frequently leave cut material right on the saws so it can be moved directly to trucks for shipping, rather than transferring it to a staging area first. “We take it right off the saws instead of a laydown area. That gives us more area to put inventory down, instead of staging cut orders,” Benlock says. Hammond says a smooth running system is imperative for Triad’s incentive-based model for employee compensation. He tells all new hires that they, rather than he, will determine how much money they make. It depends on how much material they move out the door. “You can’t ask someone to do something better and not give them the tools,” he adds. “I don’t want them to work 16 hours a day, I want them to work eight efficient hours a day.” When Triad reaches its efficiency apex, Hammond believes the Columbia City facility will be able to move 20,000 to 25,000 tons per month with only a handful of workers. Lessons learned from the Columbia City expansion will inform Triad’s decisions on its next major undertaking, a second facility in Pittsburgh. The company will follow the Columbia City footprint, though with slightly different saws to meet its distinct customer base in western Pennsylvania. At a Glance Triad Metals International Address: 5755 East Rail Connect Dr. Columbia City, IN 46725 Phone: 260-244-9500 Fax: 260-244-2786 Web site: www.triadmetals.com Key Personnel: Ron Hammond and Fred White, co-owners; Aaron Hornaday, warehouse manager; Tony Adkins, sales manager Facility: 180,000 square feet, two bays with rail access. Employees: 30 Products: Carbon structural steel, H-pile, pipe and tube. Services: Band sawing, cambering, T-splitting, welded pile points. Equipment: Behringer band saw and material handling equipment, Steel Storage System conveyors, L.L. Brown beam splitter, Bay-lynx Camber Cat cambering machine, Zenar overhead cranes, Taylor fork trucks. Thu, 03 Jan 2013 19:21:00 GMT f1397696-738c-4295-afcd-943feb885714:9153 http://www.metalcenternews.com/Editorial/CurrentIssue/November2012/tabid/5916/articleType/ArticleView/articleId/9152/Aluminum-Week-Report.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5916&ModuleID=14146&ArticleID=9152 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=9152&PortalID=51&TabID=5916 http://www.metalcenternews.com/Editorial/CurrentIssue/November2012/tabid/5916/articleType/ArticleView/articleId/9152/Aluminum-Week-Report.aspx Aluminum Outpaces the Economy Though they expect GDP growth to slow in 2013, Aluminum Week speakers offered plenty of reasons for nonferrous suppliers to be optimistic about the years to come. By Dan Markham, Senior Editor Executives who gathered for Aluminum Week were greeted by some rather depressing news on the macroeconomic front, though the prognosis for their materials is considerably brighter. Members of the Aluminum Association, Aluminum Extruders Council and Aluminum Anodizers Council met last month in Chicago for the annual conference. Chad Moutray, chief economist for the National Association of Manufacturers, told attendees to expect GDP growth below 2.0 percent in 2013, and that’s only if the much-discussed fiscal cliff is avoided. Others shared that pessimistic outlook for the economy. But the news was not all bad for markets that aluminum serves. Aluminum’s market share grab in automotive continues unabated, executives reported. And the housing market, moribund for several years, is showing signs of life, as well. During the event, the Commerce Department released September housing start figures that showed the seasonally adjusted annual rate had jumped to 870,000 units, an increase of 15 percent to its highest level in four years. Automotive market Aluminum and steel have been in a long-running battle for share in the automotive market, a fight that has picked up steam since the official enactment of new CAFE standards for fuel efficiency earlier this year. But Alcoa’s Marketing Director Randall Scheps, who serves as chairman of the Aluminum Association’s Auto Transportation Group, said there’s little need for the material’s backers to engage in any back-and-forth with steel’s supporters. “We think, strictly based on the technical merits, aluminum is going to win a lot of these arguments. The steel guys are just being aggressive, trying to hang on to the markets they have today,” Scheps said. “But the fact is the automakers need to save big chunks of weight, and steel is not going to get them there.” Scheps also dismisses the threat advanced high-strength steels pose to aluminum’s expected gains. Higher strength steels already account for 60-70 percent of the steels used in auto production. “Based on state-of-the-art design today, you can go with steel and save an additional 11 percent of the weight of the body of the car. But if you go to aluminum, you can save 40 percent in weight,” he said. “There’s a lot of high-strength steel on the road, but to get to the 2025 standard, [carmakers are] going to have to do something beyond steel.” Earlier in the month, at the Steel Market Update steel conference in Chicago, analyst John Anton of IHS Global Insight suggested that aluminum’s inroads into the automotive market could be constrained by supply. But Scheps dismissed those fears, too, claiming that with bauxite and alumina, “there are no availability concerns.” The industry will face challenges on another front, however. “We have to get the rolling capacity in place in time to meet demands, especially if the carmaker wants to do a big program that requires a lot of sheet material.” He estimated it might take 2½ years to increase the rolling capacity to meet demand, a process that’s ongoing both here and around the globe. “It’s not a technical constraint. It’s not a material constraint. We have to partner with the carmakers early to make sure we’re ready.” Additionally, he said, the aluminum supply chain must not be content with the projections for its materials. It will be required to improve its alloys and their functions to meet ever-changing demands from the automakers. For instance, he said, European carmakers will require more recycled content to communicate their life-cycle concerns to customers. European concerns also are driving the aluminum industry to develop more “pedestrian-impact friendly” materials, to make the car less dangerous in low-speed accidents involving pedestrians. Construction market The news on September home starts underscored what many others in the industry had noticed throughout 2012, that residential construction was finally pulling itself off the floor. That didn’t surprise Davenport & Co. Vice President Timothy Hayes, a metals equity analyst and editor of the O’Carroll Aluminum Bulletin. “The long-term demographics support housing starts at 1.4 million units. A year ago when we put up that forecast, I can’t tell you how much pushback we got. With the new housing data, all of a sudden it becomes more plausible to get to a million starts,” he said. Most of the fundamentals are strong for the housing market, including higher household formation rates, increasing home prices, improving sales of existing homes and low interest rates. Only a low home-ownership rate, now at a 17-year low, acts as a headwind. Altogether, Hayes expects housing to grow 23 percent to 750,000 units this year, then another 27 percent to 950,000 units in 2013. The story isn’t nearly as promising in nonresidential construction. Though activity climbed 10 percent this year, most experts expect a flat 2013. Hayes said manufacturing and utilities drove this year’s higher numbers, and both are likely to experience slowdowns next year. While Hayes addressed the numbers, Ujjval Vyas, principal at consulting firm Alberti Group LLC, spoke of aluminum’s place in a rapidly changing construction industry. He stepped back into the past to note how the industry failed to capitalize on a previous opportunity. In the 1950s, Reynolds published a two-volume set, Aluminum in Modern Architecture, highlighting all of its potential uses to the building, design and construction set. But that revolution never took place, and aluminum instead became a commodity to be pulled off the shelves rather than an innovative solution to many problems. Having settled into that niche, it was difficult for aluminum to escape, given how slowly the building industry has been to change, Vyas said. Now, however, that attitude is shifting. The industry is being forced to become more efficient and more open to innovation. This opens the door, once again, to aluminum. “I think aluminum and aluminum extrusions, are extremely innovative materials and can have a very powerful future in the building and construction industry,” he said. Vyas cited aluminum foam and transparent aluminum as examples of two technologies that could be used extensively by the building sector. Key players such as building owners, material specifiers and even insurance companies, must be engaged by the aluminum industry to make them understand the full capabilities aluminum can deliver. “You need to understand the market, so you are helping them to solve their problems. You can’t be passive in an innovative market,” he said. Extrusions market Hayes, speaking to the AEC, delivered a forecast for the next three years for the eight leading domestic end markets for aluminum extrusions, comparing the coming years to the material’s previous peak in 2006. The biggest disappointment for extrusions has been one of the biggest markets, residential windows. The downturn in residential construction and remodeling, coupled with material substitution, has seriously damaged the market. Even with expected growth in housing in the coming years, the use of extrusions in residential windows is expected to be more than 60 percent off its peak. The story is not as painful for nonresidential windows. Though that market also has tumbled, the substitution effect isn’t as pronounced. While the nonresidential window market will still be 11 percent below its peak in 2015, it will become almost equal in size to the residential windows market. Other markets have brighter outlooks. Curtain wall use is already up this year and will top its peak by 2015. Truck/trailer use will pass its 2006 peak by next year, Hayes said, though it won’t reach the all-time peak set in 1999. The strongest market, not surprisingly, is automotive. It will eclipse its peak this year, with 13 percent growth forecast annually through 2015. The electrical market is also performing well, having regained the ground it lost since 2006. By 2015, it will be up 40 percent from nine years earlier, Hayes said. Two other aluminum extrusion markets have demonstrated less strength. The consumer market has shown some of the slowest growth, and will only reach 17 percent of its prior peak by 2006. Machinery has been better, but will remain about 6 percent off its prior high in 2015. Exports of extrusions have been strong performers in recent years, Hayes said, taking advantage of the cheaper dollar and emerging economies. Though growth has slowed, the export market is expected to get back to its peak by 2015. Overall, the use of extrusions is forecast to grow 5-8 percent annually, reaching 4.3 million pounds by 2015. That is still down 4 percent from 2006’s previous high, however. “But if you look at it glass half-full, we’re up 62 percent from the trough,” Hayes said. Thu, 03 Jan 2013 19:13:00 GMT f1397696-738c-4295-afcd-943feb885714:9152 http://www.metalcenternews.com/Editorial/CurrentIssue/November2012/tabid/5916/articleType/ArticleView/articleId/9151/Carbon-Flat-Roll-Report.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5916&ModuleID=14146&ArticleID=9151 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=9151&PortalID=51&TabID=5916 http://www.metalcenternews.com/Editorial/CurrentIssue/November2012/tabid/5916/articleType/ArticleView/articleId/9151/Carbon-Flat-Roll-Report.aspx Steel Prices at a Tipping Point? Will demand pull flat-roll up in 2013 or will uncertainty and overcapacity drag the supply chain down? By Myra Pinkham, Contributing Editor Despite the fact that flat-rolled steel prices have been on a downward trajectory all year, major mills pushed through a new round of price increases last month in anticipation, or perhaps hope, that the market will soon turn around. Concerns about overcapacity and imports still weigh heavily on prices, though, even as demand in some sectors shows new promise, leaving the market at a tipping point, experts say. Calling it “a challenging time that constantly tests our mettle,” Mark Millett, president and chief executive officer of Steel Dynamics Inc., Fort Wayne, Ind., noted that the sheet market has declined from its spring highs both in terms of demand and pricing. Early last month, activity began to improve from the stagnant period of the previous several months, says Brian Williams, director of business development for Cleveland-based Flack Steel. He attributes much of that gain to pent-up demand. “Falling prices had kept companies from buying steel, but inventories had gotten down to a point they needed to restock.” Overall, carbon steel sheet consumption was up 10.1 percent through August, compared with the first eight months of 2011, reports Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. The rate of consumption has been slowing, however. He predicts sheet consumption will end the year with only about an 8 percent gain over last year. “Demand hasn’t been that great,” says Richard Robinson, president of Norfolk Iron & Metal, Norfolk, Neb. “It is better than during the lows of the recession, but not as good as it could be; not as good as most people were hoping.” Automotive production remains a bright spot for steel, even as aluminum makers continue to gain a larger share of the materials mix while carmakers strive for lighter, more fuel-efficient vehicles. North American light vehicle output has been quite strong this year, up 22 percent through August, Plummer says. The auto sector, which often recovers early in the business cycle, is expected to grow at least another 5 percent next year. Though it has improved substantially, “auto production remains 2.5 million to 3 million units below its peak,” notes Tom Modrowski, chief executive officer of Esmark Steel Group, Chicago Heights, Ill. “It is still not spectacular. “ Meanwhile, the energy market is “rolling along,” he says. “The drilling rate is down recently, but some of that is political. There continues to be steady flat-roll demand in that arena, even with low natural gas prices.” Domestic shipments of welded pipe and tube were up 18.8 percent year to date through August, says Plummer, who forecasts high single-digit growth for energy tubulars next year. Truly promising is a long-awaited uptick in construction demand. Nonresidential construction continues to bounce along the bottom with no real recovery expected until at least next year, says Paul Robinson, senior economist for IHS Global Insight in Washington, D.C. Housing, however, is starting to see a true recovery. Housing starts increased by a seasonally adjusted 35 percent in September to their highest level since July 2008. This could kick-start new flat-roll demand for such applications as appliances and HVAC, Robinson says. Raw materials trump end-use demand John Tumazos, metals analyst for Very Independent Research LLC, Holmdel, N.J., calls the demand side of the flat-roll equation “somewhat irrelevant.” For the past decade, the bigger influence on the steel price has been the costs of raw materials, which continue to apply downward pressure. Plummer says the price for ferrous scrap has plummeted in the past few months, with No. 1 scrap falling to $331 per ton in October, down from $415 per ton in August. Other steelmaking raw materials have shown a similar trend. Iron ore reportedly dropped from about $140 per metric ton to less than $90 a ton, before recovering to $120 per ton earlier this year. Plummer predicts domestic mills could pay as little as $140 per metric ton for metallurgical coal once contract negotiations are concluded, down from $190 per ton in 2012. It was because of these declining raw material prices that steel buyers took their foot off the accelerator, driving down flat-rolled steel prices, says Millett at SDI. As of mid-October, the spot price for flat-rolled sheet averaged $605 per ton, down from a 2012 peak of $727 per ton in late August, according to Metal Strategies. “The market was oversold, with prices reaching unsustainably low levels,” says John Ferriola, president and chief operating officer of Nucor Corp., Charlotte, N.C., explaining the major mills’ decision to raise prices last month. Pittsburgh-based U.S. Steel Corp. led the drive to boost flat-roll prices, announcing a $40 per ton increase. That move was quickly followed by others, including Nucor, ArcelorMittal USA Inc., AK Steel Corp., NLMK USA, Severstal North America, Steel Dynamics, California Steel Industries and USS-Posco Industries. “While we expected the first price increase announcements to come in November or December (after the presidential election), I am not terribly surprised to see them earlier,” says Robinson at IHS Global Insight. “I think it is fairer to characterize the increase as an attempt to stop the bleeding, rather than an honest attempt to raise prices.” Based on the continued weakness in the raw material markets, Robinson doubts the mills’ initial attempt to raise prices will pay off. He expects a second round late in the year. “It usually takes a couple of announcements for price increases to stick.” Amy Bennett, principal consultant for London-based Metal Bulletin Research, also questions whether the recent price announcement will fly. “It could just be a way for some mills to signal to others to stop slicing their prices and to help the market find a floor,” she says. “They will, however, have to have the discipline to stick to it.” Williams at Flack Steel says it is too early to tell if this price hike will spur demand, though it does suggest that those who buy today don’t have to worry as much about seeing a lower price tomorrow. “It has given the ‘all clear’ to buyers, indicating to them that it is once again safe to get back into the water,” he says. Lisa R. Goldenberg, president of Delaware Steel Co., Fort Washington, Pa., says service centers remain cautious about buying in a big way, having been blindsided by the market’s volatility. The lack of predictable seasonality has made it hard for flat-roll buyers to plan. Service centers with the liquidity will place some orders, but most will not be overzealous in the current conditions, agrees Esmark’s Modrowski. “There needs to be some rationalization of capacity, both domestically and globally,” says Nick Sowar, global steel industry leader for Deloitte & Touche LLP (see related sidebar). Weak demand in markets overseas is adding to the threat from cheap flat-rolled imports looking for a home. Total U.S. steel imports are on a pace to reach 27.7 million tons in 2012, up more than 20 percent from last year, notes Daniel DiMicco, Nucor’s chairman and chief executive officer. “Such increases are totally inconsistent with a domestic economy that is barely growing, as well as a U.S. steel industry capacity rate mired in the range of 70 percent.” It’s highly likely the domestic industry will file new trade cases to stem this influx of unfairly priced imports, he adds. Others see less of an immediate threat from imports. Sheldon Tenenbaum, senior vice president of supplier development for Reliance Steel & Aluminum Co., Los Angeles, does not believe hot-rolled imports are flooding the market. The spread between foreign and domestic prices has tightened in recent months, he says. “With the recent short pricing cycles, who in their right mind would speculate on imports?” asks Modrowski at Esmark. Given the plentiful domestic supply and short lead times, there would need to be a $100-$150 per ton gap between the domestic and foreign price, and it would have to persist for several months, before buyers would risk the long lead times of imported steel, says Robinson at IHS Global Insight. After suffering through a year of steadily declining steel prices, industry executives say they are cautiously optimistic of at least slight improvement in 2013. Plummer predicts the market will see its usual cyclical bounce in the first quarter. For the year, much depends on how quickly the construction market rebounds, he adds. Construction accounts for about 30 percent of all steel sheet demand. Meanwhile, the steel market is holding its breath awaiting the outcome of the presidential election and how adroitly Congress acts to keep the country from tumbling off the so-called “fiscal cliff.” Most economists agree that if the automatic tax increases and spending cuts are allowed to take effect, the U.S. could find itself back in recession, which would be a disaster for steel and every other industry. Thu, 03 Jan 2013 17:40:00 GMT f1397696-738c-4295-afcd-943feb885714:9151