Promising Year Hits Some Potholes
2012 started out strong, but suffered in the second half from lingering economic uncertainty.
By Tim Triplett, Editor-in-Chief
Perhaps it’s because the year started out with so much promise that its finish with so little progress seems so disappointing. For most metals producers and distributors, 2012 will go down in the books as “just OK,” rather than the “just great” normally expected following a recession.
Through October, U.S. service center shipments of steel were running only 3.4 percent ahead, and aluminum was running just 1.2 percent ahead, of 2011, according to the Metals Service Center Institute. World crude steel production was tracking less than 1 percent ahead of the prior year, reported the World Steel Association. If November and December data follows the downtrend of the second half, 2012 may essentially be a repeat of 2011.
For metals suppliers, 2012 fell far short of its early potential for a number of reasons, many of them macroeconomic. U.S. GDP growth sputtered along at around 2.5 percent, well short of the 3.5 percent rate forecast by many economists last year. Thus unemployment remained too high and consumer spending too low to really kick start growth and demand for capital goods. Slowing growth in Asia, recession in Europe and election-year politicking contributed to the insecurity and lack of investment last year.
Global economic uncertainty only added to the volatility of metals pricing. Scrap prices reportedly declined from nearly $470 a ton in January to less than $330 a ton by October, taking the price of steel down with them.
Industry sentiment tracked along with metals prices. Hot-rolled sheet began the year at nearly $750 a ton, a decent level for mills and service centers alike, setting the stage for what looked like a strong recovery. For most of the year, however, suppliers’ hopes deflated along with the steel price, which dipped below $600 a ton by October. It has since recovered a bit, but leaves the market to ponder the likely trend for 2013.
Aluminum followed a similar path, starting the year strong, steadily losing ground until fall, before recovering modestly in the fourth quarter. In February 2012, the spot price for high-grade aluminum on the London Metal Exchange was $2,203 per metric ton, or right around $1 a pound. By August, it had declined to a low for the year of $1,837 per ton or about 83 cents a pound—a 17 percent erosion. By year’s end, it had recovered modestly.
Copper saw a 12 percent swing from its March high around $3.84 a pound to its June low of $3.36, but it improved in the second half to over $3.60, according to LME figures. Copper prices have seen years with worse volatility.
Unfortunately, as 2013 arrives, many of the global and domestic economic questions remain unanswered, making forecasts for metals pricing and demand just as tenuous as in 2012.
Some metals producers struggled with the challenging market conditions last year. Most notably, RG Steel filed for Chapter 11 bankruptcy protection. “Despite aggressive cost-reduction efforts...the company has been unable to overcome the impact of the continued deterioration of the market and the inability of the industry to sustain a meaningful recovery,” said CEO John Goodwin. Loss of a key supplier sent some service centers scurrying to find other sources of supply.
Germany’s ThyssenKrupp acknowledged it was seeking a buyer for its new carbon steel plants in the United States and Brazil. After investing billions in two new state-of-the-art mills, company officials reported they are “examining strategic options” for their Steel Americas plants in Rio de Janeiro and Calvert, Ala.
On the aluminum side, market leader Alcoa announced plans to curtail 12 percent of its global smelting capacity to lower the company’s costs and improve its competitiveness. But Alcoa also made a major investment in China to produce aluminum parts for the aerospace, automotive, transportation and electronics markets. Along similar lines, aluminum maker Novelis announced plans to build the company’s first automotive sheet manufacturing facility in China.
Many other producers of steel and aluminum sheet, bar and tubular products announced new investments in plant and equipment last year in anticipation of improving market conditions moving forward.
Industry consolidation continued among both producers and distributors of steel and aluminum, but at a modest pace, with no megamergers announced in North America. Raising the most eyebrows was the Platinum Equity investment group, owner of Ryerson Inc., which acquired a 6 percent stake in A.M. Castle & Co., causing speculation that the purchase could be the initial step in a merger between the two service center giants. A.M. Castle’s board subsequently instituted a shareholder rights plan to rebuff any takeover attempt.
Among service centers, the big continued to get bigger, though not necessarily in the same manner. There’s a noticeable trend among distributors to diversify by acquiring downstream businesses. For example, market leader Reliance Steel & Aluminum added McKey Perforating and steel fabricator GH Metal Solutions to its portfolio of companies. It also acquired distributors specializing in promising niche markets, such as National Specialty Alloys, a distributor of premium stainless steel and nickel alloy bars and shapes, and Sunbelt Steel Texas, a distributor of special alloy steel bar and heavy-wall tubing products for the oil and gas industry.
To cite a few other examples, O'Neal Industries expanded its manufacturing division with the acquisition of Iowa Laser Technology, which offers laser cutting, welding and forming of various parts. Canada’s Samuel, Son & Co. acquired Stanrail Corp., a maker and distributor of railcar components. Metals USA bought Gregor Technologies, a fabricator of custom parts and assemblies for OEMs.
Strong showings by the aerospace, energy and automotive markets are likely to continue in 2013. The wild card, experts say, is how quickly the construction sector recovers.
Following is a roundup of notable news events reported by Metal Center News in 2012:
• Chicago-based Ryerson Inc., North America’s second-largest service center company, acquired Turret Steel Industries and Sunbelt-Turret Steel, service centers headquartered in Pittsburgh. The acquisition also included Turret-affiliated companies Wilcox Steel and Imperial Logistics.
• Optima Specialty Steel Inc., Miami, acquired Niagara LaSalle Corp., Hammond, Ind. Niagara LaSalle is a specialty steel processor and manufacturer of engineered cold-finished steel bars.
• Ron Chase, president of Action Steel Corp., Edison, N.J., was named Steel Man of the Year by the Association of Steel Distributors, Chicago. The annual ASD award honors an individual who embodies leadership, dedication, service and excellence in the steel industry.
• Marmon/Keystone LLC promoted J.T. “Tim” Spatafore to president of the Butler, Pa., tubular products distributor. Norman E. Gottschalk continues as president of Marmon Distribution Services LLC.
• ArcelorMittal installed a super heavy duty coiler at its Indiana Harbor mill in East Chicago, Ind. The massive, three-story-tall device can coil 1-inch steel up to 76 inches wide for API X80 line pipe.
• Gerdau Special Steel North America launched the second phase of its $67 million investment in Monroe, Mich., adding a new walking beam reheat furnace and four additional rolling mill stands.
• The Commercial Metals Co. board recommended that its stockholders reject the unsolicited tender offer of Carl Icahn to acquire the company for $15 per share. Icahn, a minority shareholder, had made a bid for the company in November 2011.
• Almost 90 percent of respondents to Metal Center News’ Outlook Survey considered themselves optimistic about 2012, a higher figure than in the pre-recession boom year of 2007.
• Dr. Chris Kuehl, economic analyst for the Fabricators and Manufacturers Association, predicted the U.S. could expect growth of around 3 percent in 2012 if the U.S. government addressed four key issues: employment, consumer behavior, global economic strain and the role of politicians.
• Heidtman Steel announced plans to build a new $18.5 million processing facility in Calvert, Ala., on the campus of ThyssenKrupp Steel.
• O'Neal Industries, Birmingham, Ala., expanded its manufacturing division with the acquisition of Iowa Laser Technology Inc., Cedar Falls, Iowa. Iowa Laser employs more than 20 laser cutting machines, plus various welding machines and forming equipment, to process sheet, tube, stamped and spun metal parts.
• New York-based Alcoa announced plans to close or curtail 531,000 metric tons, or 12 percent of its global smelting capacity, to lower the company’s costs and improve its competitiveness.
• Nucor Corp., Charlotte, N.C., approved $290 million to upgrade its SBQ facilities in Memphis, Tenn., Norfolk, Neb., and Darlington, S.C. The projects will expand the steelmaker’s SBQ and wire rod capacities by a combined one million tons.
• Severstal North America commissioned a new 500,000-ton hot dip galvanized line at its Dearborn, Mich., facility.
• U.S. service centers shipped 40.7 million tons of steel in 2011, an increase of 14.2 percent over 2010, the Metals Service Center Institute reported.
• World crude steel production reached a record 1.53 billion tons in 2011, an increase of 6.8 percent compared to 2010, according to the World Steel Association.
• Speaking at MSCI’s Carbon Conference, Kloeckner Vice Chairman Michael Hoffman said he believes mills looking to expand their holdings will target North America’s most successful service centers. “We have broken the taboo against the European model. We’ll see service centers acquired by mills, though right now they have other priorities in mind.”
• Reliance Steel & Aluminum expanded its downstream holdings with the acquisition of McKey Perforating Co., New Berlin, Wis., and its subsidiary McKey Perforated Products Co., Manchester, Tenn.
• Marmon/Keystone opened a new warehouse in Tulsa, Okla.
• Finnish specialty steelmaker Outokumpu merged operations with Inoxum, the stainless steel unit of Germany’s ThyssenKrupp. The combined company operates under the Outokumpu name. ThyssenKrupp now holds a 29.9 percent interest in Outokumpu.
• Steel Dynamics Inc. announced a $76 million investment to expand its Engineered Bar Products division in Pittsboro, Ind., to 950,000 tons of annual capacity.
• The Timken Company moved forward on a new $225 million investment at its Faircrest Steel Plant in Stark County, Ohio, to expand its specialty alloy steel bar capacity.
• New York-based Alcoa agreed to join with China Power Investment Corp. to produce high-end fabricated aluminum products for the aerospace, automotive, commercial transportation, consumer electronics and packaging markets in China.
• Ratner Steel Supply Co., Roseville, Minn., began construction of a new $14 million steel processing and distribution facility at the Port of Indiana, to be operational in early 2013.
• Samuel, Son & Co., Mississauga, Ont., acquired Stanrail Corp., Gary, Ind., a maker and distributor of railcar components.
• Metals USA Holdings Corp., Fort Lauderdale, Fla., acquired Gregor Technologies, a fabricator of custom parts and assemblies for OEM customers in Torrington, Conn.
• ArcelorMittal USA President and CEO Mike Rippey called on the federal government to turn its attention to the nation’s crumbling infrastructure. Rippey was one of the North American steel executives who spoke to the Congressional Steel Caucus.
• Chicago-based Ryerson opened a new bar processing depot and full-line service center in DeKalb, Ill., following its opening of a new plate processing facility in Eldridge, Iowa.
• Reliance Steel & Aluminum Co. purchased National Specialty Alloys, a Houston processor and distributor of premium stainless steel and nickel alloy bars and shapes.
• Marmon/Keystone added a stainless steel bar depot at the company's Spring Valley, Ill., location.
• TSA Processing expanded its nonferrous operations with the opening of a facility in the Chicago market, the company’s first outside Texas.
• Steel Technologies secured land in Celaya, Mexico, to construct a 125,000-square-foot flat-rolled steel processing operation.
• JMC Steel Group Inc., Chicago, completed the acquisition of Ontario’s Lakeside Steel. The new North American division created in the process is called Energex Tube.
• Atlanta-based Novelis Inc. announced plans to build the company’s first automotive sheet manufacturing facility in China. The company will construct a wholly owned $100 million plant with a capacity of 120,000 metric tons per year in the Jiangsu Province.
• RG Steel announced plans to idle all three of its North American steel mills in Sparrows Point, Md.; Warren, Ohio; and Wheeling, W.Va., as a result of a liquidity crisis.
• Germany’s ThyssenKrupp acknowledged it was seeking a buyer for its new carbon steel plants in the United States and Brazil. Company officials reported they are “examining strategic options” for their Steel Americas plants in Rio de Janeiro and Mobile, Ala.
• Nucor Corp., Charlotte, N.C., purchased Skyline Steel and its subsidiaries from ArcelorMittal. Skyline Steel, Parsippany, N.J., is a steel foundation distributor.
• The Specialty Steel Industry of North America, Washington, D.C., expressed concern about surging imports of grain-oriented electrical steel. SSINA claimed that annualizing March data for full-year 2012 would result in a 38 percent increase in imports over 2011.
• 2012 was developing into a difficult year for steel mills, with macroeconomic developments around the world weighing heavily on steel demand, reported Peter Marcus and Karlis Kirsis, managing partners of World Steel Dynamics, in their remarks at the Steel Success Strategies conference in New York. Marcus and Kirsis forecast diminishing demand, especially in China, low steel mill orders and lower steel prices for the second half of the year. “Folks, we are on the steel price roller coaster. The magnitude of the price decline will be a function of how much of a fall there is in iron ore, coking coal and steel scrap, all of which we think will come down,” Marcus told the crowd of steel industry executives.
• Nucor-Yamato Steel Co., a joint venture between Nucor and Yamato Kogyo Co. Ltd., approved a $115 million plan to expand the production of hot-rolled sheet piling. The project at Nucor's steel mill in Blytheville, Ark., is expected to be finished in early 2014.
• Luxembourg-based Tenaris S.A. announced a $1.5 billion investment in a new seamless pipe mill to serve the energy industry in the Gulf of Mexico. The mill, expected to begin operations in 2016, would have an annual production capacity of 650,000 tons.
• SBQ-producer Republic Steel began construction of a new electric arc furnace and related equipment at its Lorain, Ohio, facility. The company expected the first heat of steel from the new mill to be tapped during the second quarter of 2013.
• RG Steel, the country’s fourth-largest steelmaker, filed for Chapter 11 bankruptcy protection. “Despite the company’s aggressive cost-reduction efforts…the company has been unable to overcome the impact of the continued deterioration of the market and the inability of the industry to sustain a meaningful recovery,” said CEO John Goodwin.
• Kloeckner Metals, North America’s fourth-largest service center company, announced plans to build a new 100,000-square-foot light-gauge flat-rolled processing facility in the Southeast on the campus of ThyssenKrupp’s flat-rolled mill in Calvert, Ala.
• The Leavitt Tube Co. was renamed Maruichi Leavitt Pipe & Tube, LLC, to better reflect the ownership of the company, which is 60 percent owned by Maruichi Steel Tube Ltd. and 40 percent by Sumitomo Corp. of America.
• At mid-year, most service center operators looked back on the first half with a feeling of accomplishment, but their outlook for the rest of the year was considerably less bullish. Interviews with service center executives revealed a general sense that the best of 2012 was behind them (which generally proved to be the case).
• Heidtman Steel planned to close its Sparrows Point, Md., facility by Oct. 31 in response to declining demand for steel in the Northeast and the Chapter 11 filing of one of its biggest suppliers, RG Steel.
• Steel Technologies ramped up its Mexican operations with five new production lines at two different sites, Pesqueria, NL, and Celya, GTO.
• The Obama administration released its final ruling on fuel efficiency standards for American automobiles and light trucks, requiring automobiles to get up to 54.5 mpg by 2025, almost double the miles per gallon required under the current standards. The new regulations turned up the heat on the competition for market share between the makers of steel and aluminum. The move toward vehicle lightweighting has allowed aluminum to grow its share of automobile production annually. Steel has responded with the development of lighter high-strength steels to protect its position as the dominant automotive material.
• Carpenter Technology Corp., a major producer and distributor of specialty metals, planned to pare down its distribution holdings with the sale of its Latrobe Specialty Steel Distribution division and its Mexican network, Aceros Fortuna. Carpenter plans to focus on growing its high-value specialty alloy manufacturing, titanium processing and precision engineered businesses.
• California Steel Industries planned to build a new $100 million pipe mill at the company’s site near Fontana, Calif., to produce high-strength electrical resistance welded pipe.
• Brazilian steelmaker Gerdau announced plans to resume construction of a $542 million EAF steel mill in Sagun, Mexico, to produce structural shapes. The new mill will have an annual capacity of 1 million tons of steel and 700,000 tons of rolled product. Plans for the mill were initially announced in 2008, but were idled with the economic downturn. The mill is expected to be operational by the second half of 2014.
• Nucor Corp., Charlotte, N.C., sold its Nucor Wire Products Pennsylvania facility to an affiliate of Wire Mesh Corp., Jacksonville, Fla.
• Welded Tube of Canada planned to shut down its ERW tube mill in Huger, S.C., to relocate production to its Concord, Ont., operations north of Toronto.
• The Platinum Equity investment group, which owns Ryerson Inc., acquired a 6 percent stake in A.M. Castle & Co., raising speculation that the purchase could be the initial step in a merger between the two service center giants. A.M. Castle’s board subsequently instituted a shareholder rights plan to rebuff any takeover attempt.
• Main Steel planned to move into a new flagship location in the Chicago market. The 240,000-square-foot facility in Elk Grove, Ill., will serve the entire Midwest, combining the company’s two Chicago operations, located in Bartlett and Wheeling, under one roof.
• Even with lackluster nonresidential construction, demand for structural tubing grew by nearly 10 percent in 2012 on the strength of orders from the manufacturing sector. Experts predicted further “choppy” improvement in 2013, though the HSS market remains 25 percent below its peaks in 2006-07.
• Following a strong first half, producers and distributors of aluminum reported waning momentum in the second half as the market faced several strong headwinds, including the disappointing economic recovery in the United States, the fiscal crisis in Europe, a slowdown in China and uncertainty over the upcoming presidential election.
• Joint venture partners Hilco SP LLC and Environmental Liability Transfer Inc. completed the purchase of the former RG Steel Sparrows Point mill in Baltimore County, Md., and planned to sell the mill and its assets.
• ThyssenKrupp Materials North America announced plans to invest $13 million to build a new processing and distribution center southeast of Birmingham, Ala. Part of the Coil Processing Group, the facility will support the operations of the company’s Ken-Mac Metals and ThyssenKrupp Steel Services divisions.
• Reliance Steel & Aluminum Co., through its subsidiary Feralloy Corp., acquired the stock of GH Metal Solutions Inc., Fort Payne, Ala. GH, formerly known as Gas House Inc., is a processor and fabricator of carbon steel products.
• Leeco Steel, Lisle, Ill., announced plans to build a 73,000-square-foot facility near Fort Worth, Texas.
• Bushwick Metals, Bridgeport, Conn., acquired service center Tarco Steel Inc. and fabrication shop Metal Fab LLC, both located in Binghamton, N.Y. The companies go to market as Tarco Steel, a division of Bushwick Metals LLC, which is owned by Marmon/Keystone .
• Russel Metals Inc. agreed to purchase Apex Distribution, a Canadian oilfield supply company based in Edmonton, Alberta, with $500 million in annual revenues.
• MidWest Materials chairman and co-founder Joseph Koppelman passed away at age 94. An industry leader and one of the earliest members of the Association of Steel Distributors, Koppelman founded the business as a one-room operation in Cleveland in 1952. Located in Perry, Ohio, the company is now one of the 100 largest service centers in the United States.
• Experts say the outlook for air travel, and production of new aircraft, promises a robust market for suppliers of aerospace materials for at least the next decade. Orders for new aircraft reportedly are backlogged for seven to eight years.
• Gerdau completed construction of a new continuous caster at its Monroe, Mich. facility. The new caster is part of a multi-year, $155 million capital investment project to increase production capacity and quality at the mill, to be completed by the end of 2013.
• Evraz North America planned to restart its Portland, Ore., spiral mill, which has been idled since July 2009. New equipment is to be installed in the first half of 2013, to serve the fast-growing Bakken and Western Canada oil and natural gas regions, as well as oil fields in the U.S. Rockies.
• RTI International Metals Inc. produced the first certified commercial aerospace titanium at its new $135 million forging, grinding and hot-rolling facility in Martinsville, Va.
• Despite the fact that flat-rolled steel prices were on a downward trajectory all year, major mills pushed through a new round of price increases in anticipation, or perhaps hope, that the market would soon turn around. Concerns about overcapacity and imports weighed heavily on prices, even as demand in some sectors showed new promise.
• Esmark Steel Group planned to acquire RG Steel's Yorkville, Ohio, cold-rolled finishing mill and RG Steel's 50 percent interest in Ohio Coatings Co.'s tin plate production facility. The purchases once again returned interest in the properties to Esmark, which said the two acquisitions would accomplish its goal of returning the company to $1 billion in revenue in 2013.
• Olympic Steel planned to expand its steel processing facility in Chambersburg, Pa., an $11 million capital investment to better serve the company's East Coast customers.
• A.M. Castle & Co. named Scott Dolan president, CEO and board member, succeeding interim CEO Scott Stephens, who continues as chief financial officer. Stephens filled in for former President and CEO Michael Goldberg, who resigned in May. Dolan is former senior vice president of airport operations and cargo at the combined United and Continental Airlines.
• Reliance Steel & Aluminum Co. acquired the assets of Sunbelt Steel Texas, Houston. Sunbelt is a value-add distributor of special alloy steel bar and heavy-wall tubing products to the oil and gas industry.
• According to the 2013 Capital Spending Forecast, published by the Fabricators & Manufacturers Association, International, Rockford, Ill., U.S. metal fabricators expected to spend about 4 percent more on new metal processing equipment in 2013.
• Optima Specialty Steel Inc., Miami, Fla., planned to acquire Kentucky Electric Steel, Ashland, Ky., a value-added minimill manufacturing special bar quality and merchant bar quality flat steel products.
• Welded Tube USA, the subsidiary of Welded Tube of Canada, planned to invest $50 million to construct a new steel pipe mill on the former Bethlehem Steel property in Lackawanna, N.Y., to serve the energy industry.
• Dan DiMicco stepped down as CEO of Nucor Corp., handing the reins to current President and COO John Ferriola. DiMicco will remain as executive chairman of the Charlotte, N.C., minimill.
• Service center company Dennen Steel opened a steel stamping facility in Iuka, Miss., the Michigan-based company’s first plant in the South. The $7 million operation is located near the Severstal mill in Columbus.
• Demand for SBQ products cooled considerably in the second half. Rising imports and increasing domestic production capacity could boost supply ahead of demand and delay any recovery, experts said.
• Steel and aluminum shipments by U.S. service centers were running just 1-3 percent ahead of 2011, according to MSCI, as the market coasted toward the end of 2012. Likewise, the Copper and Brass Servicenter Association reported red metals shipments for the year to date that were about the same as 2011.
• Bill Hickey, president of Lapham-Hickey Steel in Chicago, was named the 2012 Service Center Executive of the Year by Metal Center News.