Tollers Tooling Up for High-Strength Steel
Toll processors face a major investment to upgrade their equipment to handle the new high-strength steels and lightweight aluminum alloys increasingly favored by automakers and other customers.
By Myra Pinkham, Contributing Editor
Toll processors have been pretty busy lately, especially those serving the auto sector. Like their automotive customers, tollers are seeing a major change in the materials coming through their doors. Gearing up to handle the new generation of advanced high-strength steels and aluminum sheet products that car designers are using to make vehicles lighter and more fuel efficient is a major challenge facing the toll processing industry.
Most toll processors--processors that cut, slit, form and fabricate other people’s metal for a fee--are cautiously confident that business will continue to improve in 2014 more or less in line with the U.S. economy.
“While the toll processing market is not yet running on all cylinders, it is doing better than a few years ago. It is probably now running on six out of eight cylinders,” says Seth Young, president of Amerinox Processing Inc., Camden, N.J.
The year began with activity that was a little sluggish due to the extreme cold weather and mill price increases, but has begun to pick up nicely, toll processors say. “The market is just chugging along with steady, but not killer, volumes,” says Bret Wells, a national account processing manager for Heidtman Steel Products’ Fulton County Processing unit in Delta, Ohio.
The level of improvement varies by end market and region. In general, processors say, demand from customers in the automotive and energy sectors has been stronger than general manufacturing and construction. Demand in the Midwest--except perhaps auto-oriented Detroit--has been weaker than other regions, particularly the South.
The variations have a lot to do with the OEMs in each region, says Eduardo Gonzalez, chief executive officer of Cleveland-based Ferragon Corp. Much of the manufacturing that used to be in the Midwest is now located in the South or Mexico, where labor rates are cheaper. But that trend may actually reverse a bit as companies re-shore plants from China and other parts of the world, which no longer hold such a cost advantage, he says.
Overall, most signs are positive for U.S. manufacturing. U.S. Federal reserve data shows industrial production was up 2.6 percent year-on-year in December. The Institute for Supply Management predicts domestic manufacturing revenue will increase by 4.4 percent in 2014. Much of this growth is coming from the auto sector, where North American production increased 5 percent to 16.2 million cars and light trucks last year. Experts predict the industry will produce about 16.4 million vehicles this year and 17 million next year. By 2025, the market will top 18 million units annually.
“While the growth rates will likely moderate from those in the past few years, demand will not decline,” says Bob Demyan, vice president of sales for Flat Rock Metal Processing, Portage, Ind.
David Pettigrew, general manager for All Metals Service & Warehousing, Cartersville, Ga., says the bullish growth projections are not surprising given the decade-plus age of the average vehicle currently on the road.
Automotive is not the only end market driving toll processing demand. Activity is picking up in the energy sector, and even building and construction, executives report.
Booming exploration in the nation’s shale plays has boosted drilling for oil and natural gas, which requires vast amounts of pipe for down-hole applications and transmission pipelines. “All this pipe needs to be processed,” notes John Grossheim, also a national account processing manager for Heidtman’s Fulton County Processing unit.
There has even been some improvement in the lagging construction sector, says Ed Panek, All Metals’ senior executive vice president. Most of this pickup is in housing, where new construction reached a seasonally adjusted annualized rate of 1.09 million units in November--a five-year high. There was also a slight increase in nonresidential construction activity late last year. For toll processors, that translates into more business from makers of household appliances, HVAC equipment, construction machinery and public-works related products such as highway guide rails.
Some toll processors are also benefiting from overflow business, Panek says. “Instead of going to additional shifts, some service centers, as well as mills, have been sending some of their processing to toll processors.”
Companies are more cautious about investing in hard assets these days, says Ferragon’s Gonzalez. Some prefer to let their toll processor take on the expense of adding a specialized piece of new equipment. “Since the economic downturn, companies are being very careful about the risk involved in adding assets. Often it makes more sense for toll processors to bundle up the business from a number of customers into one piece of equipment,” he explains.
For auto-industry toll processors, there is no getting around the need for new equipment. The question is when. Carmakers are pushing hard to lighten vehicles ahead of new federal fuel efficiency standards by using thinner-gauge advanced high-strength steels, duplex stainless steels and aluminum. This is dividing toll processors into two basic camps: those who are already investing, in some cases creating new business units, to handle the new lightweight materials, and those who are waiting to see how auto materials shake out before spending millions on equipment that might not be effective or required.
Ferragon definitely falls into the proactive camp, Gonzalez says. “We aren’t fooling around. We want to be sure we have the necessary equipment in place no matter how the market goes.”
The steel industry has devoted a lot of time and money to help develop and promote the use of advanced and ultra high-strength steels in an effort to stem the loss of market share to aluminum and other nonferrous alloys. The effort seems to be paying off. For example, the new Chevrolet Silverado, winner of Truck of the Year honors, uses AHSS in its frame and cab structure and UHSS in its rocker panels and underbody.
“We are starting to see a bigger percentage of AHSS products, including those with increasingly challenging chemistries,” says David Detzel, director of outside sales for Voss Industries, Taylor, Mich. As the chemistries get more sophisticated, with tensile strengths approaching 980 megapascals, it becomes more and more difficult to work with the steel.
Because of its unusual strength, AHSS tends to resist bending and straightening. Processing lines require more horsepower for uncoiling, recoiling and leveling. Blanking and slitting lines may experience problems with shears that can’t cut to length and slitter knives that chip and wear. Picklers may need to change the acid chemistry of their lines. Material handling equipment may need the capacity for aluminum coils with an outer diameter of up to 84 inches, versus the usual maximum of 72 inches for steel coils.
In an effort to prepare for these challenges, Heidtman is currently investing in a new Alcos slitter at its East Chicago facility with the capability to handle 70,000 pound coils up to 78 inches wide and thicknesses up to a quarter inch. Voss has already done several upgrades, Detzel says, including doubling the horsepower of one recoiler. Other toll processors cite similar investments.
Specialty metals processors face a comparable need to invest in new equipment that can handle the tougher duplex stainless steel alloys, says Young at Amerinox. The higher tensile and yield strengths of those lower nickel stainless steels are very taxing on processing equipment. Amerinox has already made sizable investments in polishing and cutting equipment and plans other upgrades, as well.
Others are taking it more slowly. All Metals Service is in no rush to pull the trigger, Panek says. His company plans to take a little more time to evaluate the new equipment and its potential payback. “So far we are not having problems processing the grades of AHSS that we are being asked to process.”
“Until steelmakers go to market with the next-generation AHSS grades, we continue to have questions about their machining requirements,” Pettigrew adds. “We still don’t know what the high end of AHSS will be and if the new equipment being sold today will be good enough to handle the new materials coming to market five-plus years from now.”
Many toll processors are steel-centric and have less experience with nonferrous metals. Yet they may find themselves being asked to process aluminum sheet, which is finding wider application in car and truck bodies.
“Aluminum producers are borderline overconfident that they will be taking market share from steel in automotive applications,” says Gonzalez at Farragon. All eyes are on Ford Motor Co. to see how much success it has with its aluminum-intensive 2015 F-150 pickup truck. Some experts say it could be a game-changer for the aluminum industry and prompt the makers of other top-selling pickups to introduce models with aluminum body panels. But if buyers don’t accept the new F-150, automakers will go back to steel, Gonzalez predicts. “It is the consumer who will ultimately determine what materials the automakers use, despite the new fuel efficiency standards.”
Lawrence Kavanagh, president of the Steel Market Development Institute in Washington, maintains that steels already available today can be used to reduce vehicle mass by 25-30 percent. That is sufficient for automakers to achieve the 2025 average fuel economy requirement of 54.5 miles per gallon without increased use of alternative materials, he says, based on calculations by the National Highway Traffic Safety Administration and the Environmental Protection Agency.
Though it will take some time to see how the automotive materials tug-of-war plays out, Ferragon started up a new company last year--Autolum Processing Co. in Wayne, Mich.--dedicated to aluminum processing. “We want to be sure that we get the business no matter how the market goes. We don’t want to lose business just because the automakers go with a different material,” Gonzalez says. Other toll processors, including Heidtman and Flat Rock Metals, are considering retrofits so they can process aluminum, as well.
For toll processors, success in the future is a balancing act between spending too much or too little today. “Demand will boom for toll processing as the economy improves,” says Grossheim at Heidtman. “That is why we are making all these investments.” Adds Young at Amerinox: “We want to have the equipment, people and processes in place to be sure we can service our customers.”