Recovery Raises the Bar
By Myra Pinkham, Contributing Editor
Mills and service centers report surprisingly strong demand for special bar quality products.
The special bar quality market is one of the bright spots for the North American steel industry. Boosted by steadily improving demand from automotive customers, availability of SBQ is actually tight, with mill lead times extending as far as six months for certain grades and sizes.
Long mill lead times have meant increased business for certain steel service centers. Traditionally, distributors’ share of the SBQ market is only 10 to 15 percent, but that figure may be higher today as more OEMs turn to service centers to get the SBQ they need, when they need it—especially those that waited too long to place orders with their mill suppliers, says a spokesperson for O’Neal Steel Inc., Birmingham, Ala.
“What a difference a year makes,” says Robert Keeler, vice president of mobile on-highway engineered steel solutions for the Timken Co., Canton, Ohio, noting that Timken’s SBQ shipments were up 70 percent through September vs. the first nine months of 2009. “This year has been surprisingly good, and we think next year will be even better.”
Currently, SBQ is one of the stronger steel markets, concurs John Ferriola, chief operating officer for steelmaking operations at Charlotte, N.C.-based Nucor Corp. Consumption has rebounded to near pre-recession levels, adds Eric Nystrom, Nucor’s national marketing manager for special bar quality production.
The strength is not consistent through the full spectrum of SBQ products, however, say suppliers. “It depends on the quality, size and grade,” says Bill Brown, general sales manager for long products at Steel Dynamics Inc., Fort Wayne, Ind. “It isn’t a one-size-fits-all, off-the-shelf commodity product. It is a customized product, which is why it is called special bar quality. It is an engineered bar.”
“Demand as a whole should remain strong,” predicts Jim Hoffman, senior vice president of operations for Reliance Steel & Aluminum Co., Los Angeles. Major end-use markets for SBQ are among those recovering fastest.
By far, the market having the biggest effect on SBQ demand is automotive, says Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. He estimates 55 to 60 percent of SBQ consumption is tied, directly or indirectly, to the automotive market.
Auto industry experts forecast production of 11.5 million passenger cars and light trucks in North America this year, up from about 8.5 million last year. “Another 10 to 15 percent gain is possible next year,” Plummer says.
While in recent months automotive sales and production have leveled off, many observers expect renewed activity in the first half of next year. “Right now automakers are producing fewer vehicles than they are selling, which is very unusual. All the major automakers will need to replenish their vehicle inventories,” Keeler says. This will be a boon, especially for the small-diameter SBQ most often used in automotive applications.
Also contributing to increased demand for SBQ is strength in the yellow goods market. Much of that is attributable to exports of off-road and construction equipment to China, India and other developing nations, bolstered by the weak U.S. dollar. According to Plummer, about 40 percent of heavy equipment is exported.
“2010 is shaping up to be one of the most significant year-over-year increases in sales and revenues in our history,” says Doug Oberhelman, chief executive officer of Peoria, Ill.-based Caterpillar Inc. While continuing economic growth in the developing world has been one key to improving sales, it has also helped that sales in developed countries have improved substantially after deep declines in 2009.
Heavy equipment gains have been fairly broad-based, says Plummer. The mining industry is benefiting from growing demand for commodities in the developing world, which in turn drives demand for earth-moving equipment. Likewise, shipments of large construction vehicles are up about 30 percent because of all the building activity overseas. Farm vehicle production is up nearly 10 percent. “Large on-road vehicles are also doing very well,” he says, noting that production of medium-duty trucks was up 41 percent in the first 10 months of the year, while production of heavy duty trucks was up about 21 percent.
Activity in the energy sector is also contributing to demand for high-quality bar products. “When oil prices reach about $80 a barrel, exploration companies tend to become more bullish,” observes Reliance’s Hoffman. Oil is currently trading around $85 a barrel.
SBQ is used in big drill rig collars, thus its demand is tied closely to the North American drill rig count, which is up nearly 45 percent this year, according to Baker Hughes Inc. “One thing pushing the rig count is a deadline for companies to start drilling in the Marcellus natural gas shale play, which if not met could place them at risk of losing their exploration licenses,” Plummer notes. “At just under $4.50 per mcf, the price of natural gas is too low for some companies to go ahead with planned projects.”
Not all service centers are seeing increased orders for SBQ, however. Some pre-buying by customers who are concerned about availability and rising prices may make it appear that demand is stronger than it actually is, says Lynn Lupori Gray, senior consultant for Hatch Beddows, Pittsburgh.
“Lead times are a mixed bag depending on the size and grade,” says Brown at SDI. Supplies of small-diameter SBQ, bars three inches and narrower, are the tightest, with lead times of 36 weeks or more, adds Timken’s Keeler. “Lead times for larger-diameter SBQ are much more normal, about 10 to 12 weeks.”
Despite the tightness of supply, service centers remain conservative about building inventories. The Metals Service Center Institute reports that bar shipments were up 23.5 percent through the first 10 months of the year, yet inventories increased by only 13 percent, as months of supply on hand remained at a lean 2.6.
Both service center and mill executives expect additional buying of SBQ in 2011, as long as the economy continues to recover. “There could be some inventory building in the first quarter. Service centers can’t afford to be out of metal in light of the extended mill lead times,” says the O’Neal spokesperson. “SBQ demand will continue to be sustained with volumes increasing slightly next year,” says Ferriola at Nucor. “It will be a steady but slow climb starting at the current healthy level, which is enough to keep SBQ mills running well.”
SBQ mills as a whole are currently running at about 75 percent of their rated capacity, higher than the industry average for all products around 70 percent, but are attempting to ramp up further, says Keeler. “Many mills are recalling laid off workers and hiring new ones. Any capacity that had been idled has either been restarted or is in the process of being restarted.”
Moves by a couple of mills will soon add capacity to the bar market. Notably, Nucor is ramping up its 850,000-ton Memphis SBQ mill, which it acquired as part of its purchase of Birmingham Steel Corp. in 2002. Idled by Birmingham before its sale, Nucor has totally revamped the mill. The long list of upgraded equipment includes: a new baghouse, new AC electric arc furnace, a modernized ladle metallurgical facility, a new vacuum degasser, a largely new continuous caster capable of making up to 20-inch diameter round cast blooms, a new reheat furnace, a new breakdown mill, a modernized rolling mill with two additional stands, and an entirely new finishing end including the cooling bed, hot blasting, abrasive sawing, chamfering, straightening and nondestructive testing.
Given the tightness in the market today, Nucor is anxious to get the mill into full production, Ferriola says. It will offer a full range of sizes and grades to the SBQ market—including large bars ranging from 3- to 9-inch rounds—complementing the capabilities of the steelmaker’s Norfolk, Neb., mill. Nucor Memphis has already gone through a lot of trials, gained a significant number of product approvals, and has begun to move product to heavy equipment, energy, automotive and agricultural manufacturers, he adds.
Most of the Nucor Memphis capacity will come on-stream in the third and fourth quarters of 2011. “It could ease the strain on the market in that timeframe,” says Gray at Hatch Beddows.
Gerdau Macsteel has announced plans to increase the capacity of its Monroe, Mich., SBQ facility, which it acquired from the former North Star Steel. The company intends to add 225,000 tons of annual production through the installation of a new caster, upgrades to the plant’s melt shop and new infrastructure construction by 2013.
Timken is adding a new intermediate finishing line at its Gambrinus steel plant, which will be fully operational in 2013. It is also expanding the steel lay-down yard at its Harrison steel plant’s small bar mill, to be completed by the end of this year.
“This year is clearly an improvement over 2009 for SBQ, and we expect that 2011 will be even better. There won’t be a boom or bust, just steady improvement,” Brown says. Slow, steady and healthy increases bode well for everyone in the supply chain, adds Hoffman, including mills, service centers and end-use customers. n