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August 2013
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Is Plate Half Full or Half Empty?

Some markets are good, others not so good. The nation's steelmakers are hoping to raise prices on carbon plate, but that may be wishful thinking given today's split demand picture..

By Myra Pinkham, Contributing Editor

U.S. carbon plate shipments have been flat this year, up only about 1-3 percent, as many of the major plate consuming industries continue to show signs of softness. Firm demand in other sectors, such as energy, rail cars and storage tanks, has not been enough to make up the difference.

Plate demand was decent early last year, but “really fell off the table” last summer as orders slowed from various end-use markets, particularly heavy equipment, says Dennis Van Duyne, director of business development for A.M. Castle & Co., Oak Brook, Ill. Activity in the plate market flattened out last fall, where it has remained ever since.

Plate producers and distributors were hoping for a seasonal pickup early this year, but it never came to fruition, Van Duyne says. While some sectors remain relatively strong, others continue to disappoint, including construction and mining equipment, where demand is weak both domestically and internationally.

In the domestic plate market, there is a reasonable balance of supply and demand. Not so in Europe and Asia, says John Zanieski, executive vice president of flat products and recycling for Chicago-based Evraz North America. “This means that foreign countries are shipping their product where there is demand—North America—and that has had a direct impact on the profitability of domestic producers.”

Mill margins are so tight at current pricing levels that it is no surprise they are attempting to raise plate price tags, says Amy Bennett, principal steel consultant for London-based Metal Bulletin Research. Early this year, mills successfully raised plate mill plate prices to around $739 per ton, up from a low of $714 last November. But that increase, much like recent price hikes on the steel sheet side, was more about plant outages that tightened supply than any real pickup in consumption. “Once that capacity came back on line, prices tumbled back to where they had been,” Bennett says.

Plate prices have been fairly stable in recent months, as the mills have been unable to get their increases to stick. The most recent $30 per ton price hike announced by Nucor Corp., closely followed by other major domestic plate mills, including SSAB Americas, Lisle, Ill., and Chicago-based ArcelorMittal USA, may well meet the same fate. “You can’t blame the mills for posturing and testing the waters. They need to raise prices to get a more reasonable return, but I don’t see it being supported by market dynamics. There isn’t enough demand,” Van Duyne says.

“It is my belief that the price increase is unsubstantiated,” agrees Pauline Malone, vice president of procurement for Klein Steel Service Center Inc., Rochester, N.Y. “The mills tried to increase prices because they aren’t making much money, but there hasn’t been any marked pickup in demand. Also, ferrous scrap prices were only up slightly in July.”

“Usually in a soft market such as this one, the mills are not likely to get the full price increase they are seeking,” says Lynn Lupori-Gray, managing director for Pittsburgh-based Hatch Management Consulting. It’s possible they could get part of the increase, however, by piggybacking on the sheet and scrap price increases.

Observers question how sustained any price increase could be given the sketchy market conditions. “The overall feeling of uncertainty about the future has been made even worse with the rate of economic growth being so slow,” says Mark Breckheimer, president of the heavy carbon group at Kloeckner Metals, Roswell, Ga., pointing to a first-quarter GDP rate that was revised down to just 1.8 percent.

Service centers have been careful not to build up their inventories, Van Duyne notes. With mill lead times so short, and no indication that plate demand will pick up any time soon, they have little motivation to make speculative buys. Even if there is a spike, distributors could get commodity grade discreet plate from mill stocks in as little as a week, and from rollings in just four to six weeks, versus eight to ten weeks historically.

About half of all the plate shipped in the U.S. is sold through distribution. As of June, service centers had whittled their inventories down to about 2.7 months supply on hand—about 11.5 percent lower than a year earlier. Even with mills trying to increase plate prices, distributors are in no rush to replenish inventories, says Bennett.

Domestic steelmakers are not the only ones feeling the plate pinch. Imports have taken an even greater hit, says analyst Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. U.S. imports of cut plate declined 24.6 percent in the first half, versus the same period in 2012, while imports of coil plate slid a similar 32 percent.

Domestic suppliers remain wary of a surge of imports from Europe and Asia, however, and point to preliminary Census Bureau data that shows a nearly 30 percent increase in coil plate imports in June, versus the previous month.

Breckheimer says plate imports into the Gulf region are up “meaningfully” this year, even though the pricing spreads between domestic and foreign plate are not as dramatic as in the past because domestic prices are so low. “The U.S. industry is willing to take action against unfairly traded plate imports,” Breckheimer says, adding that such action is currently “being actively studied.”

U.S. plate demand, while somewhat disappointing like the economy in general, is fairly steady, say the experts. Some end-use markets are faring much better than others.

A notable area of strength has been plate used for railcars. Some orders for new railcars, which had been put on hold due to the economy, are now seeing new life. One reason, says Klein’s Malone, is the tightening trucking capacity. New hours of service regulations that require drivers to take more break time could cause as much as a 5 percent drop in trucking availability, by some estimates, prompting some shippers to use rail instead.

Because there is not an adequate network of pipelines to carry oil from shale plays such as the Bakken in North Dakota and the Eagle Ford in Texas, demand for tank cars is on the rise, notes Breckheimer. With nearly 80 percent of the current drilling activity in the U.S. being for oil, versus natural gas, the backlog of tank car orders reportedly has reached about 50,000. Transporting oil by rail is more of a short-term solution, however, until the energy companies get the necessary environmental permits to build more pipelines—pipelines that would also be made of steel plate.

Delays in pipeline construction—due to environmental concerns like those surrounding the Keystone XL pipeline and other projects stalled by permitting or funding issues—have caused a major inventory correction, Plummer reports. Demand for large-diameter line pipe was down 8.6 percent through April as companies waited for projects to get the go-ahead before committing to new orders. Now that customers have other options, including rail, they are less willing to be locked into the 10- to 15-year oil and natural gas off-take agreements that are commonly required for pipeline construction, he adds.

The potential to transport liquefied natural gas via rail also bodes well for tank car production, says Breckheimer. LNG rail shipments were up 4.3 percent through May, and that rate of increase could accelerate as the U.S. economy improves.

Plate used to construct storage tanks for oil and gas has gotten a boost from the oil refineries. “There is clearly a need for new refining capacity,” says Breckheimer, who notes that the U.S. has not granted a permit for a new refinery since 1995. In order to guarantee they have enough product to meet their customers’ needs, existing refineries are running close to full capacity and storing the excess in tanks. Replacement demand for aging tanks also consumes steel plate.

The market continues to wait for something to give on the infrastructure front. Everyone knows the nation’s roads and bridges are facing serious decay, and it is only a matter of time before they must be replaced. Congress approved a modest, two-year highway bill last year that allocates $109 billion for infrastructure work. A bill that would provide an additional $550 million in funding for highway and bridge projects, public transportation, passenger and freight rail and port improvements, is currently being considered by the Senate. Meanwhile, spending for public works construction was down 2.2 percent through April, according to Plummer at Metal Strategies.

The markets for heavy equipment used in construction and mining—both major consumers of steel plate—have been stymied by the slow economic recovery in the U.S. and even weaker conditions in the traditional export markets of China and Europe, say the experts. Demand for mining equipment has been especially hard hit by the weak coal mining sector. “With coal mining demand drying up and all the idled mining equipment, there is no reason to expect companies to buy new equipment,” says Mark Trimble, marketing manager at Huntington Steel & Supply Co., Huntington, W.Va.

Mining equipment demand is down about 15 percent, compared to two years ago, says Trimble. “It is no secret that due to environmental concerns the Obama administration is pushing to close coal mines. Because of that, demand for mining equipment will be stuck in slow mode for a while.”

Douglas Oberhelman, chairman and chief executive officer of Caterpillar Inc., Peoria, Ill., recently admitted that the remainder of 2013 will be tough for the mining equipment market, but he believes the long-term outlook is positive. “The world needs mined commodities, and we believe that demand will continue to increase.

The sentiment is similar for producers and distributors of carbon plate. They remain hopeful for improved demand, but cannot point to any specific signs that the market will take off in the near term. “Much depends on the improvement in the health of foreign economies,” says Zanieski at Evraz, “as well as the willingness of the United States to implement new, stronger trade laws in order to strengthen growth, investment and employment in North America.”

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