Sept 2016
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Tale of Two Markets for Structural Tube

By Dan Markham, Senior Editor

While it’s neither the best of times for nonresidential construction, nor the worst of times for heavy equipment, demand for steel tubing contrasts sharply in the industry’s two largest markets.

The state of the North American structural tubing market depends largely on who you ask. Those supplying the material to equipment manufacturers say conditions are dreadful. Suppliers to the construction industry report a fairly positive past, present and future.

Structural steel tubing—hollow long products in many rectangular, square and round forms—is a market with a pretty clean split among end uses. About 40 percent goes into industrial applications, primarily heavy equipment. The other 60 percent is used largely in construction applications, particularly nonresidential buildings. In construction, steel tubing provides structural support as an alternative to beams or concrete pillars. It is also used as a decorative architectural element. In equipment, tubing provides rigidity to frames and other components. It is also used to contain electrical wiring and hydraulics.

With the exception of some construction equipment, production of heavy machinery has stalled. Low commodity prices have sharply curtailed investment in agricultural and mining equipment, the other two major heavy equipment sectors. “The heavy equipment market is just a speck of what it was a few years back,” says Paul Vivian, publisher of the Preston Pipe Report, a St. Louis-based industry publication.

“It’s hard to miss what’s going on with John Deere and Caterpillar,” says Larry Soehrman, vice president of material management for Romeoville, Ill.-based Chicago Tube & Iron. The two leading domestic makers of heavy equipment have announced repeated plant closures and layoffs over the past two years, with more restructuring to come. “When you talk to some in the ag business, they’re not real optimistic about 2017. It’s a concern when that market is going to come back.”

“I think if we see agriculture in the Midwest improve, we’ll see a lot more stable [tubing] market,” adds Paul Totten, vice president of Totten Tubes, a Los Angeles-based distributor of pipe and tube products.

The numbers bear that out. In 2014, the structural tubing market enjoyed its best year in history. Since then, consumption has been on a downhill slide. Not coincidentally, 2014 was the last good year for farm income. In addition to ag and mining, weakness in the energy market also has had a negative ripple effect on tubing demand.

Some tubing suppliers are faring better than others. “Overall, we’ve been very satisfied with our year-to-date shipments, especially with the continued struggles of the energy and agriculture markets,” says Bill Snyder, president of EXLTUBE, North Kansas City, Mo.

Buoying structural steel demand is nonresidential construction activity. Though still short of its peak nearly a decade ago, spending on industrial and commercial building has shown consistent if unspectacular growth, executives say.

Construction spending through the first half of 2016 increased 6.2 percent compared with the first six months of 2015, reports Ken Simonson, chief economist for the Associated General Contractors of America, Arlington, Va. Moreover, nonresidential construction spending, the primary segment for structural tubing products, is 7.9 percent higher for the year to date.

“Construction has been fairly strong in the Midwest-Central plains region we service, and we’re happy about that,” Snyder says. Totten offers a similar assessment of the market on the West Coast.

Tubing products bound for construction markets, such as Hollow Structural Sections, typically are used in nonresidential projects that don’t extend beyond a handful of stories tall. Architects use the material for both its strength and its functionality as a conduit for electrical wiring, sprinklers or other architectural elements. “It’s a little more expensive than beams, so you don’t want to use square and rectangular all the way up to the 30th floor,” Vivian says, though it occasionally may be used at the very top of multistory buildings for its aesthetic attributes.

On the public construction front, structural tubing is most likely to benefit from bridge work. Some companies are hopeful the new federal transportation bill will give projects a boost. Vivian is withholding his enthusiasm. “Despite how giddy everyone is about with the highway dollars, what we see is a lot of rebar and concrete replacing old rebar and concrete. We remain cautious about how the money will be spent.”

For large round structural steel products, billboards represent a growth market as companies convert old roadside billboards to today’s rotating digital signs. Structural tubing can handle the digital boards’ stronger wind load requirements and offers a conduit to string the necessary electrical wiring from the ground up to the signage.

In an effort to expand the use of structural tubing in the construction sector, the Steel Tube Institute is leading a new effort to sell tubing’s attributes to architects and engineers. “It’s not a good fit in every application, but there are spots where it really shines, and we’ve gotten that message out to the engineering community,” says Joe Anderson, executive director of STI and a champion of the organization’s efforts to promote Hollow Structural Sections or HSS.

In many cases, HSS can replace other steel products, such as wide-flange beams, though the industry hopes to win market share from competitive materials such as concrete and wood. The endeavor is not without its hurdles. Historically, building designers have had difficulty connecting HSS products to wide-flange beams, though they have made some headway on that front. Perhaps the biggest impediment is simply inertia, sources say. Architects and engineers have years of experience working with beams, and that same level of familiarity does not exist with tubing.

“There’s still a resistance in the construction business from those who are comfortable with beams and channels to make the switch to structural tubes. Once they do it, they find there are benefits, but it’s a hard sell to make the transition,” says Soehrman.

Over the past few years, the steel industry has developed a new grade of structural tubing, A1085, which Anderson describes as a “better product than A500,” the traditional HSS grade. A1085 offers tighter tolerances, higher yield and tensile strength and greater uniformity throughout the product length, he says. But it faces the same marketing challenges.

The supply chain for A1085 also needs to be more fully developed, he says. Service centers don’t want to dual inventory the product in the hope a market develops for it, creating a chicken-and-egg situation for the new grade. “An engineer doesn’t want to spend the money to design a building in A1085 and hope he can get it,” Anderson says.
Although STI does not work directly with service centers, instead focusing on steel tube producers and fabricators, Anderson acknowledges the key role distributors play in the growth of HSS. The institute has developed an online tool to inform designers not just of a product’s capabilities, but its availability in the marketplace. “It helps steer them away from sections that are only rolled once a year, the more obscure sizes. If it’s not something that’s produced on a regular basis, it’s not only expensive, but hard to get, especially when service centers are keeping inventories in check,” he says.

The trade group’s promotional efforts are appreciated by suppliers, but the real payoff is yet to come. “A lot of attention is being paid to it, but I don’t think there’s any confirmation we’ve taken market share from wide flange or alternative materials,” says Scott Morris, executive vice president of marketing for Bull Moose Tube Industries, Chesterfield, Mo.

Some products may be difficult to locate, but the overall market is not in short supply. Service center executives say the domestic industry is already well served. “There’s overcapacity in structural tubing to start with. Add to that a couple of soft markets, and it doesn’t bode well for the industry,” Soehrman says.

The rising price of hot-rolled coil, from which tubing is made, did give tubular mills some room for a price increase in the first half, but not as much as they would have liked. One of the leading players in the industry has been reducing prices, sources say, putting a squeeze on other producers. “We’re seeing some undisciplined things going on in the marketplace,” says Bull Moose Vice President Rick Dobbs.

The price increase for hot-roll is largely the result of trade case actions, which have insulated the domestic market from some foreign imports. If foreign mills can’t send their hot-rolled coils to the United States, some executives fear, they may start rolling more tube for export, at below domestic prices. “We’re not well protected against imports on the products we produce. If our raw material cost remains substantially higher than the rest of the world, it’s going to welcome other countries to convert their hot-rolled coil into more tubing and pipe that will make its way to the United States,” says Snyder. “This may not be a 2016 event, but I have concerns about 2017 and beyond.”

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Tuesday, October 17, 2017