Plate’s Strength Persists
While hot-band demand and pricing have shown recent weakness, carbon plate remains one of steel’s strongest markets.
By Myra Pinkham, Contributing Editor
Carbon plate has been one of the strongest steel sectors this year, with a financial performance surpassed only by special bar quality products. Despite some recent pressure, plate prices in the domestic market have held their own and may even improve going into next year, say the experts.
“Like all steel products, plate was hammered in 2009. But it has come back well,” says Bill Jones, vice chairman of O’Neal Industries Inc., Birmingham, Ala.
“Plate demand has been pretty strong, and prices are up compared with last year despite the fact there has been a little downward pricing pressure lately,” says Steve Koch, senior vice president of operations for Reliance Steel & Aluminum Co., Los Angeles.
In fact, plate prices hit their second highest level ever earlier this year, reports analyst John Anton, director of the steel service at IHS Global Insight, Washington, D.C. “The fact that prices are now down slightly isn’t a sign of weakness, but rather an end of abnormally high prices,” he maintains.
According to American Metal Market, plate prices reached $1,114 a ton in April, up 30 percent from $855 a year earlier, and almost double what they were in the depths of the recession. In the past month, prices declined slightly to about $1,020 a ton, but remained 23 percent over July 2010 levels and 68 percent higher than July 2009, when plate sold for only about $600 a ton.
“I’m puzzled why the price of plate is staying fairly strong when hot-rolled coil has been falling sharply,” says Charles Bradford, principal and metals analyst Bradford Research, New York. “Usually they parallel each other. While there are some differences in end uses, many of them do overlap.”
The relatively healthy plate market has begun to attract some imports, observers report. Plate imports have not been much of a factor since the economic downturn, Koch says, but now some service centers and OEMs are bargain shopping. Comfortable that plate prices will remain fairly stable, some are attempting to take advantage of the lower foreign prices.
“Any time a market heats up you see an increase in imports,” Jones observes. But as for O’Neal, he says, “At this point, we don’t want to risk the long lead times of imports. It isn’t necessary when there is good domestic supply.”
Nevertheless, the Washington, D.C.-based American Iron and Steel Institute reports that June import permit applications for cut-to-length plate were up 40 percent, while those for coil plate were up 17 percent, vs. May.
Imports could continue to have a dampening effect on plate prices, keeping them steady or perhaps even slightly lower, Koch says. Without the rise in imports, plate prices would likely have continued to increase, he adds.
Lead times from domestic plate mills had extended a bit, but have come back slightly to about four to six weeks, says Dan Miksta, vice president and general sales manager for SSAB Americas, Lisle, Ill. “A year ago we were struggling to keep our operations full, but since the fourth quarter of 2010 we have been very busy,” he says. He admits that demand has experienced a slight weakening lately, especially from service center customers, “but it is nowhere near as significant as what appears to be happening with hot-roll. It is a gentle softening.”
Current uncertainty about the domestic and global economies has contributed to this softening. Even though service center plate supplies have been fairly lean, at about 2.5 months on hand, “everyone is cautious about building up inventories,” says Steve Lesikar, president of Cyclone Steel Services Inc., Houston. “They are just buying metal little by little and waiting to see what the price does in the next few months.”
Daniel DiMicco, chairman and chief executive officer of Nucor Corp., Charlotte, N.C., told analysts during the steelmaker’s recent second-quarter conference call that the government will have to deal with the nation’s aging infrastructure at some point. “The tremendous energy and infrastructure development that should have started two years ago will have to be dealt with. We believe that bodes well for plate in the future, even past what’s going on now, which is a very healthy plate market.”
Miksta observes that most plate end markets are doing better than a year ago, with particular strength in yellow goods, especially mining equipment, and in transmission power lines. The energy sector also has been a bright spot, with drilling activity bolstered by exploration of the various shale plays, a recent increase in line pipe activity, and increases in demand for wind power and other renewable energy sources. Wind power may lose some steam, however, if the government does not renew its production tax credits.
Land-based oil and gas exploration is stronger than offshore. The drill rig count is up about 20 percent over last year, spurred on by drilling in the Marcellus and other promising shale plays, according to Baker Hughes Inc. Even at the current low natural gas price of only about $4.40 per mcf, exploration companies are drilling, Lesikar says.
According to the American Wind Energy Association, the U.S. wind power industry installed 1,118 megawatts of new capacity in the first quarter of this year and entered the second quarter with another 5,600 megawatts under construction—nearly twice the rate of growth of the past two years. Wind energy, and other alternative energy sources, could see their federal subsidies suffer as Congress seeks to slash spending during negotiations to raise the debt ceiling, Jones notes.
Some of the demand for steel plate from the power transmission industry comes from its need for new transmission lines to connect renewable sources of energy, but much of it comes from the need to upgrade the power grid and ensure more reliable transmission of electricity, Miksta says. “Like a lot of infrastructure needs, problems in the power grid have not been totally resolved.”
Production of various kinds of heavy equipment continues to be a strong market for plate suppliers, Anton says. Mining operations are still extracting a lot of ore and coal worldwide, which bodes well for makers of large earthmoving machines. With prices for grain and other crops at high levels, demand is healthy for farm equipment, as well. Construction equipment continues to lag, however, especially with nonresidential building unlikely to recover this year or even next. “But there are good exports to Asia, especially with the weak U.S. dollar,” Anton adds.
The railcar, barge, heavy-duty truck and shipbuilding markets also have been active, and are expected to strengthen further as the economy improves and increases the need to transport more goods, say the experts.
Upgrades to roads and bridges have consumed some steel plate, but infrastructure spending overall continues to disappoint, Miksta says. “A lot is due to the politics involved in federal funding, including of the highway bill.” Federal stimulus dollars may have boosted plate a bit, “but nowhere near as much as advertised.”
Sens. Barbara Boxer (D-Calif.) and Jim Inhofe (R-Okla.) reportedly are about to introduce an $86 billion, two-year highway bill in the Senate, to be called Moving Ahead for Progress in the 21st Century (MAP-21). The fate of even such a bipartisan effort is still uncertain given the current cost-cutting political climate in Washington, say observers.
Meanwhile, even with the recent increase in imports, plate supply has remained fairly stable. Unlike hot-rolled sheet, plate is not affected by much increase of domestic capacity. Both SSAB and Nucor have added quench and temper capacity, but Miksta says that is more of a product shift than additional plate supply.
That will not necessarily be the case in the future, as Nucor has several expansions in the works. DiMicco says Nucor is planning to put a normalizing facility, in addition to the quench and tempering, at its Hertford, N.C., plate mill. It is also considering a similar upgrade to its mill in Tuscaloosa, Ala., and is “actively engaged in a search for a new plate mill location to serve the market better as we see growth improving going forward.”
“This has been an excellent year for plate, and next year is expected to continue to be strong,” Koch says. While the weakness in construction and increased imports could have a dampening effect, there is enough strength in manufacturing demand to make up the difference, Jones adds.