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8-2010 Carbon Plate Market
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Plate’s Prospects Not All Bad

By Myra Pinkham, contributing Editor

Nucor Hertford County photo courtesy Nucor Steel.
Most steel suppliers expect a second half for the plate market that is much like the first—a slow, steady recovery marked by periods of fluctuating demand.

To say plate is flat is to state the obvious. But that does not tell the whole story. “Plate is actually one of the better flat products this year,” says Sheldon Tenenbaum, senior vice president of Los Angeles-based Reliance Steel & Aluminum Co.

While demand for carbon plate remains relatively weak, suppliers say it has fared better than other flat-rolled segments and may heat up a bit later this year.

“Plate pricing has held up better than sheet,” Tenenbaum says. “One reason is that on the producer side, there are fewer players making plates than sheets, both in the United States and worldwide.”

Domestic plate demand through July was “dramatically better” than in the first seven months of 2009, says Dan Miksta, vice president and general sales manager of SSAB Americas, Lisle, Ill. From a historical point of view, though, it remains “lukewarm,” he says.

With scrap and other input costs on the decline, many service centers and other buyers are waiting on the sidelines to see where plate prices will level out. No. 1 heavy melt steel scrap, which is considered the bellwether ferrous scrap grade, fell to about $300 a ton in July from nearly $370 a ton in April. But it seems to have stopped its slide, registering a modest gain in late July, and is now expected to follow iron ore up in the near term, sources say.

Plate pricing has been less volatile than other flat-rolled products, largely because it is not affected by the big swings in automotive demand, says Amy Bennett, senior steel consultant for London-based Metal Bulletin Research. Since June 2009, plate prices have risen by over 50 percent, but fell back 5 to 6 percent in July. Bennett says it is rumored that domestic plate mills will follow the sheet producers’ lead (several mills announced $30 to $40 sheet price increases in early August) and announce price hikes soon, prompted by higher costs and the desire to halt the downward pricing trend.

“The first six months of this year were actually quite busy, largely because service centers were back in the market,” after going through a destocking phase last year, Miksta says. More recently, the restocking phase has ended and distributors have become cautious once again about building inventories.

“Volumes and months on hand have remained at the historical low end of the spectrum throughout the past year. There does not appear to be much building of [plate] inventories,” Tenenbaum says. “It is clear now that the risks outweigh the benefits of speculating on inventories.”

The Metals Service Center Institute reports that plate inventories reached 772,000 tons in June, which is actually a 2 percent increase from a year earlier. But stocks on hand remained quite low at 2.5 months, compared with 3.2 months a year earlier and greater than four months at the beginning of 2009. The low stock levels reflect the 28.3 percent increase in service center plate shipments year on year.

“We are in a very unsettled economic environment, one where it is hard to predict the future. This has caused our customers to be very conservative in their buying habits,” says John Ferriola, chief operating officer of steelmaking operations for Nucor Corp., Charlotte, N.C. Service centers, while not on the same buyer’s strike as in the depth of the recession, are just filling the holes in their inventories, he adds. 

In fact, in some cases distributors aren’t even filling holes, fearful that prices will drift down further and stick them with high priced inventories, says Troy Jones, material manager for Huntington Steel & Supply Co., Huntington, W. Va.

“Right now the economy is improving, but it is still disappointing compared with the recovery after a normal recession,” says Bill Jones, vice chairman of O’Neal Industries Inc., Birmingham, Ala. “The Obama administration and Congress’ anti-business policies have delayed the recovery,” he contends, though he still does not expect a double-dip recession. “Short of a catastrophic event, things will continue to improve.”

“What is happening is that the market is going through a correction, but all the bad news is scaring buyers,” says Lourenço Gonçalves, president and chief executive officer of Metals USA Inc., Fort Lauderdale, Fla. “It makes it look as if the world is coming to an end, but things are actually getting better longer term. The first half was better than last year and the second half will be better than the first half.”

Gonçalves blames certain actions by the mills for some of the uneasiness on the part of service centers and OEMs. “While I don’t believe that mills are flooding the market, I would love to see them protecting prices better,” he says.

Mark Breckheimer, executive vice president of Roswell, Ga.-based Namasco Corp., feels the mills are being as disciplined as they can. “They all are now pretty much at full capacity. They are trying not to curtail capacity again, but they might have no choice. No one wants to load up on steel when there is a general lack of confidence.”

“The industry as a whole got a little overzealous earlier in the year and got into the mode of bringing back idled capacity,” admits Scott Montross, executive vice president of Evraz Inc. NA, Portland, Ore. “But as demand declined, companies were careful to react and either take down capacity or reduce shifts.”

Bennett at MBR notes that most of the domestic plate producers operate electric furnace mills, which makes it easier for them to move production levels up and down.

John Anton, director of the steel service at IHS Global Insight, says that plate producers as a whole are doing a good job of reacting to the market and not overproducing. Plate prices have gone down mostly due to declines in raw material costs, not because of a lack of discipline on the part of the plate mills, he says. 

Little new plate capacity is coming on line, other than a new 120,000-ton-a-year heat-treat line Nucor is adding to its Hertford County, N.C., mill. That line will enable Nucor to get into certain new product lines, including armor plate and product for additional heavy equipment applications, Ferriola says.

Despite its seasonality, Ferriola says that plate demand is holding up fairly well. In fact, plate, especially discrete plate, is probably Nucor’s strongest product line right now. “While it is down 20 to 30 percent from the peak, it has been consistent since late 2009,” he says.

With the BP oil spill in the Gulf of Mexico and the offshore drilling moratorium, there has been a little pullback in the oil and natural gas market, observes Richard McLaughlin, director of Hatch Beddows, Pittsburgh. 

Yet demand for oil country tubular goods has remained strong over the past three to four months, says Montross, and looks like it will remain strong through the end of the year.

One application that continues to consume plate is the fabrication of transmission towers, especially to connect wind and other alternative energy sources to the power grid. Alternative energy is a good market for plate, but not as good as it should be, says O’Neal’s Jones. “There has been some pickup in plate use, but in many cases, I see more rhetoric than reality in the push for wind power and other renewables (see related story).

Breckheimer notes that nuclear energy is a very promising market for steel plate. “It hasn’t been a robust market since the 1970s or 1980s, but now there are a handful of projects on the books. It is a prospect to stem our dependency on oil. Public tolerance to nuclear has improved. It is a pretty green technology. I think it will materialize. When? I’m not sure.”

“Some [nuclear] contracts are being let, some projects are under way and some major construction is planned,” says Jones at O’Neal, which has a growing nuclear division. “There is some MRO business now, but it is nowhere near where it will be in coming years.”

How much of that business falls to domestic suppliers remains to be seen. Currently, much of the steel for the nuclear industry is supplied by Japanese producers, notes Anton.

Demand for plate in heavy equipment is currently a mixed bag, with consumption for agricultural and mining equipment improving. But construction equipment is still fighting the effects of weak residential and commercial building.

Federal economic stimulus programs have proven disappointing to most steel executives. “There has been a little bridgework and a little bit for renewable energy, but I don’t think it has had the impact on the market that everyone expected,” Montross says.

Very little government money has been spent on plate so far, says Ferriola. “We hope to see more as the year continues and into 2011.”

“What we really need are projects that involve new bridges and structures,” adds Miksta, rather than all the paving projects that don’t consume much metal.

Anton estimates that government stimulus will add about 10 million tons of demand for all steel products over three years. While not an overwhelming benefit, it will provide some relief to a steel industry still suffering the effects of the recession.

Should the federal surface transportation bill be reauthorized, especially at a higher rate than the last six-year rendition of that legislation, it could be much more stimulating to the plate and other steel sectors than the economic stimulus.

While the highway bill has been extended at current funding levels through the end of the year, it would take full-fledged reauthorization to really provide much benefit to the steel industry. Whether the current political environment will allow Congress to pass another six-year plan remains in doubt.

“I think gridlock in Washington will continue and forestall any major spending plans,” says Breckheimer. “It is unfortunate, but it would probably take another catastrophic bridge failure to get things moving in this climate of fiscal austerity.”

Surface transportation funding is more likely to be approved in “little dribs and drabs,” says McLaughlin, vs. a single, comprehensive bill. “I think public sentiment is just too against governmental spending.”

“That’s the kind of money that should be spent,” adds Ferriola. “It is money that would create jobs.”

Even if the highway bill is reauthorized, state and local governments may not be able to raise the matching funds needed to get infrastructure projects moving, notes Anton.

Most steel suppliers expect a second half for the plate market that is much like the first—a slow, steady recovery marked by periods of fluctuating demand. “It will be awhile until we get back to 2008 levels,” Montross says.

Wind Energy Market Losing Steam

Prior to the economic downturn, wind turbines were in high demand, as was carbon plate used to make the towers and other components. In the past 18 months, wind energy has lost its steam despite the nation’s continued push for green energy sources.

In late July, the American Wind Energy Association reported that only 700 megawatts of wind power was installed in the United States in the first half of 2010. That’s 71 percent fewer wind towers than in the first half of 2009 and 57 percent fewer than in the first half of 2008. New installations for full-year 2010 will likely be 25 to 45 percent below last year, the group estimates.

Construction on a number of wind-power projects will at least be started this year to take advantage of the federal convertible tax credit that is due to expire. Currently there are about 5,500 megawatts in the pipeline. Next year, however, AWEA predicts a dramatic decline “as there is no demand beyond the present coasting momentum” without new federal government policy to promote wind farm demand.

This is not good news for plate suppliers, says Scott Montross, executive vice president of Portland, Ore., based Evraz Inc. NA. On average, each wind turbine uses a few hundred tons of carbon plate, with the whole wind power market consuming 400,000 to 700,000 tons per year.

Not all of that is produced in the United States, observes Sheldon Tenenbaum, senior vice president of Reliance Steel & Aluminum Co., who notes that some wind power projects have been awarded to foreign companies that produced the components outside of North America.

“Strong federal policy supporting the U.S. wind energy industry has never been more important,” says Denise Bode, AWEA’s chief executive officer. “We have a historic opportunity to build a major new manufacturing industry. Without strong supportive policy, like a national renewable electricity standard to spur demand, investment and jobs, manufacturing facilities will go idle.”

Federal stimulus money from the American Recovery & Reinvestment Act has helped to bring some wind power projects already in the pipeline to the finish line, adds Bode. “However, power purchase agreements—the locomotive that drives the project pipeline—are difficult to obtain today given the drop in overall electricity demand, lower natural gas prices and the absence of a clear national renewable energy policy.”

Lack of available credit to finance such projects further complicates the situation. “A lot of the wind turbine projects installed in 2009 had funding in place before the financial crisis,” notes Dan Miksta, vice president and general sales manager for SSAB Americas, Lisle, Ill.

It isn’t just a credit issue, adds Bill Jones, vice chairman of O’Neal Industries Inc., Birmingham, Ala., who notes there is also a general lack of confidence on the part of the investment community in funding capital projects.

AWEA says a renewable electricity standard would prompt utilities to buy wind power and stimulate demand again. As proposed in the American Clean Energy and Leadership Act of 2009, which got the nod of the Senate Energy and National Resources Committee last summer, a national renewable electricity standard would require that 15 percent of the United States’ energy be produced from renewable sources, such as wind, solar and biomass, by 2020.

However, the scaled down energy bill that Sen. Harry Reid (D-Nev.) was to have introduced earlier this month was not expected to include a renewable electricity standard. Rather, its main focus was likely to be the cleanup of the oil spill in the Gulf of Mexico and measures for improving U.S. energy efficiency. The measure also was not expected to include a cap and trade provision, which is strongly opposed by the steel industry.

The Obama administration says it intends to keep pushing for broader comprehensive energy reform, which may eventually translate into greater demand for steel.

  
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Friday, November 28, 2014