August 2016
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Plate Price Improves, But Where’s Demand?

While the carbon plate segment has enjoyed healthier pricing in 2016, conditions remain sluggish in most end-use markets.

By Dan Markham, Senior Editor

The improvement in carbon plate pricing in the first half was welcome news to mills and service centers in North America, though tepid demand is unlikely to drive further gains this year, say the experts.

“Demand in the U.S. has been almost flat year over year. Plate demand in Western Canada has been impacted by the slowdown in energy exploration and production activity, and we have seen our shipments to that region decline accordingly,” says a spokesman for Evraz North America, Chicago.

According to The Steel Index, North American mills enjoyed a nice stretch at the start of 2016, with carbon plate pricing increasing more than 45 percent. The price topped out at more than $650 per ton in June, but began to erode in July. In fact, the price gap between plate and hot-roll dipped to just $11 in mid-July. “The spread between sheet and plate is one of the lowest in the last few decades,’ says Kalyan Ghosh, president of Essar Steel Algoma, Sault Ste. Marie, Ontario.

“Plate and flat-roll used to be one word, but they’re completely separate today,” says Pauline Malone, vice president of procurement for Klein Steel Service, Rochester, N.Y., noting the way the price of the two products once moved in tandem. “Flat-roll has wind behind it that, unfortunately, plate doesn’t have.”

“We had a nice little run-up in plate prices, to the tune of a couple hundred bucks. Now, all of a sudden, service center inventories are down and they’re not replenishing them,” says Jack Biegalski, a sales and marketing specialist for ArcelorMittal, Chicago. “Demand hasn’t improved, so there’s downward pressure on pricing. I don’t think it will be dramatic, but it will not allow us to raise the price or maintain it over the next couple of months.”

Expectation that the price will soon fall is keeping service centers on the sidelines, say executives and analysts. “Everyone thinks prices are going down, so they’re buying as little as possible. It hurts demand for steel, but it keeps inventory lean. It’s wise to be scared of trying to catch a falling knife,” says John Anton, senior principal economist for the IHS Pricing and Purchasing Service in Washington, D.C.

Service center carbon plate inventories were running at a seasonally adjusted 2.8 months on hand, according to the most recent data from the Metals Service Center Institute. With supplies adequate for the current modest demand, and the fear of falling prices, service centers are keeping their buying tight.

“Lead times are still reasonable. Deliveries for certain alloy heat-treated plate can move out at times, but as far as general A36 carbon plate is concerned, the availability is just fine,” says Jack Corrigan, executive vice president for the Charles C. Lewis Co., a Springfield, Mass., distributor specializing in plate products.

Analyst Becky Hites, president of Steel-Insights LLC, Atlanta, sees more inter-market trade between distributors during periods of uncertainty. “Service centers are telling the mills, ‘We can get it from you or we can get it from the guy down the road, so we’ll bide our time.’”

Recent trade actions have helped to buoy the price of carbon plate. While the flat-roll trade cases did not include, or significantly penalize, some of the major importers of hot-rolled band such as Korea, Taiwan and India, virtually all of the major plate-producing countries were affected by the U.S. plate case. “Plate got extremely good antidumping protection, talking from the perspective of a plate producer, not a plate buyer,” Anton says.

In contrast, a successful plate case was lost on appeal in Canada, though Canadian producers did get protection against unfair pipe imports. “They can import plate and turn it into pipe,” Anton notes.

Anton describes himself as “bearish” on steel prices, but believes the trade case rulings make plate the most likely steel product to withstand weakening price conditions in the second half. “The entire run-up in 2016 has little fundamental support. It was based on nothing but Chinese speculation. But the Chinese price increase didn’t take, and other carbon steel prices around the globe will soon follow,” he says, with plate faring slightly better. “The general trend will be sideways for plate through the end of this year and into the start of next year,” he predicts.

While the trade cases are helping to support domestic pricing, they may have negative repercussions elsewhere in the market. Anton believes the rulings could be a pyrrhic victory if a persistently higher U.S. price for the material begins to damage demand. He points to heavy equipment maker Kubota, for example, which might turn a pricing advantage for steel plate in Japan into longer-term market-share gains against U.S. producers such as Caterpillar and John Deere. “Eventually it’s going to affect plate demand, one way or another. It’s hard to compete when your biggest cost is plate steel and a competitor that makes a quality product is spending $200 per ton less,” he argues.

North American suppliers have similar concerns for other products. Ghosh at Essar Steel Algoma worries that an improved bridge construction market could be muted by fabricators purchasing bridge components from overseas rather than plate from domestic mills. “We sometimes forget that a bridge in semi-knockdown condition can come in from somewhere. Government [trade regulators] shouldn’t be focused just on bare steel.”

Heavy equipment and bridges are two of the major end markets for plate products, and neither is particularly strong. Bridge work was expected to improve after Congress passed a long-term, rather than a stopgap, transportation bill, but the effects have yet to materialize, executives say. “We’re not seeing it yet,” Biegalski says. “We’re not seeing the inquiry or RFQ levels from the state and federal DOTs. The money is out there, which should be reassuring to a lot of fabricators, but they just aren’t seeing the projections come to fruition.”

The view is the same from service centers. “We’re seeing some quoting, but they’re not quite spending the money yet,” says Malone at Klein Steel. “I expect that to grow in the next year.”

Much of the heavy equipment market remains troubled. Mining is in the middle of a long period of inactivity, as commodity prices continue to scrape the bottom, and agriculture has followed suit. The difficult conditions were reflected in the recently announced plan by John Deere to lay off 120 workers at its East Moline, Ill., plant. Construction machinery is the only significant source of demand for the equipment builders.

The downturn comes as no surprise. “Cat, Deere and Komatsu were saying 2016 was going to be a tough year, and 2017 doesn’t look much better,” Biegalski says. “We need a kick in global mining so some of these guys start buying equipment.” Hites is doubtful that will happen. “I’m pretty sure mining is not going to come back any time soon. It could be a 2020 event. Ag is usually a three-to five-year cycle, and we’re two years into the downturn. It might come back next year, but it could be 2018 before it gets going again.”

The timetable for the oil and gas market is similarly uncertain. Early-year increases in the oil price to the $40-50 per barrel range created some optimism, but that’s still a long way from a recovery. “There is some glimmer of hope, but right now it hasn’t translated into volume,’ Ghosh says. “The prices have come up from the lows of January-February, but for the cap ex [in the oilfields] to restart it will need some more.”

In the transportation market, purchases of steel plate for rail cars and barges are mostly flat. “We’ve seen a big fall-off in the tank car business, which is basically just us, Nucor and SSAB kind of carving it up,” says Biegalski at ArcelorMittal.

The one strong market for plate in the current environment is wind turbines, executives say. Favorable tax credits continue to keep the wind energy market spinning. The towers for windmills are expected to consume an estimated 800,000 tons of plate over the next five years.

One promising segment does not make for a bullish 2017 forecast, however, especially given North America’s overcapacity for plate production. “It seems there’s a never-ending supply chasing a finite amount of orders,” Biegalski says.


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