Tool Steel Rebounds to Pre-Recession Levels
With automotive, heavy equipment and other industrial markets showing yearlong strength, tool steel distributors forecast an even healthier 2012.
By Dan Markham, Senior Editor
How strong is the tool steel market? Not only do most company’s results compare well to last year, they stand up in comparison to some of the best years ever.
“For the last couple of years, we tended to look at the year before and say we’re making a good comeback,” says Jim Walsh, tool steel manager for Pennsylvania Steel, Bensalem, Pa. “Now we’re discounting the last couple of years and looking back to our largest years. We’re talking a pretty major percent increase.”
Producers and distributors of tool steels—alloys used by manufacturers in the creation of dies, cutting tools and other industrial products—are unanimously pleased with the health of the market through the first three quarters of the year.
“Sales of tool steels remain strong in the last half of the year, just as they were in the first half,” says Patricia Miller, spokeswoman for tool steel producer Bohler-
Uddeholm, Elgin, Ill. “Those companies that were able to support themselves through the 2008-09 downturn are maintaining the business they have, and in some cases seeing the return of business from overseas markets.”
Just as significant, the improvement has been across the board. “Our historical markets in tool steels are die casting, hot extrusion, forging, plastic molding, cold-work tooling and cutting tools,” Miller says. “All of these areas have seen a resurgence in the past year.”
Gary Heien, Jr., president of Ford Tool Steels in St. Louis, sees similar balance. “I can’t pinpoint and say it was automotive or appliance. Everybody’s had a pretty good year. You can’t hold back manufacturing. It just can’t stay stagnant,” Heien says.
Automotive has long been the biggest driver of tool steel demand, and the revitalized auto industry is a big reason for the supply chain’s current success. North American light vehicle production is expected to top 13 million units this year, a double-digit gain from 2010 and up more than 40 percent from the depths of the recession.
Even though the build rates for automotive and heavy equipment are expected to increase next year, it’s difficult to predict how that will translate into tool steel demand, says Chris Zimmer, vice president of sales and marketing for Universal Stainless and Alloy Products Inc., Bridgeville, Ill. “Sometimes there’s not a direct correlation between build rates as much as model changeovers that drive tooling redesigns,” he notes. “But the statistics we have for 2012 indicate it will be better than 2011.”
In addition to model changeovers, the auto companies are challenged by new CAFE standards to improve vehicle fuel efficiencies, resulting in changing material requirements. “These new requirements have placed increased demands on the tooling materials. But we are well positioned to handle these issues because we have had the good fortune of working with customers who could see these changing coming, allowing us to develop new alloys for these applications,” says Bohler-Uddeholm’s Miller.
While some members of the supply chain see the growth trend continuing, others report some slowing in the fourth quarter. “In the spring and into the summer, it was very busy. Now the phone activity is slower and the order counts are steady but not great,” says David Sharwarko, a vice president with Tool Steel Service Inc., Bridgeview, Ill.
“It was a very strong year until the last eight to 10 weeks. Then it became a rollercoaster,” Heien agrees.
Tool steel, like all industries, is not so far removed from the recession of 2008-09 to forget it completely. The lingering economic uncertainty is keeping suppliers cautious in a number of ways.
Inventories at the distributor level are higher than they were a year ago, though still running leaner than normal. Others in the supply chain remain reluctant to put material on the floor or in the pipeline.
“Our customers are busy, but they are reluctant to take on new employees. And they are hesitant to commit to any major expansions. They want to be better prepared for any downturn,” says Miller.
Walsh says his company is in the process of adding stock at all of its facilities, a reflection of the improved business conditions and Pennsylvania Steel’s commitment to carrying inventory. But he knows that attitude is not common. “Most end users don’t stock tool steel. They buy as they go, and I don’t know that any of our customers are bulking up on inventory,” Walsh says.
Reports on the availability of material vary. Miller acknowledges that lead times for her company’s special-melted materials, such as VIM, ESR, VAR and powder metallurgy, are still extended, as Bohler-Uddeholm is “running at or near capacity on a global basis.”
On the other hand, Zimmer says Universal Stainless can respond quickly to new orders, as its melt shop is running at only two-thirds capacity.
Zimmer believes the United States’ heavy dependence on foreign product, and the long lag that comes between order and arrival, makes the tool steel industry more cyclical. Thus, any dip in fourth-quarter activity may simply be the result of a cyclical downswing, rather than any true decline in demand.
“Our fourth quarter may be down modestly, but as I look at those historical swings, I would expect a very strong first quarter,” he says.
Universal to Produce
Tool Steel Rounds Domestically
Like many industries in the past few decades, tool steel has seen most production shift overseas. Reversing that trend, Universal Stainless and Alloy Products Inc. will soon begin producing tool steel rounds domestically. The Bridgeville, Pa.-based specialty metals maker purchased a new facility in North Jackson, Ohio, earlier this year equipped with a radial forge.
“We’ll be the first domestic producers of tool steel rounds in about 14 years,” says Chris Zimmer, vice president of sales and marketing for Universal Stainless. Before the expansion, Universal had focused on production of tool steel plate.
The new radial forge combines the hot-working capacity of an open-die press with the finishing capabilities of a GFM in one piece of equipment. Universal will be able to take an ingot down to the final size in a single operation, enabling the company to produce tool steel bar at a price more competitive with offshore offerings, Zimmer says.
But it’s not just the price that will entice customers, he adds. Quicker delivery times and better service will differentiate Universal. “We expect to have lead times of no more than six to eight weeks out,” he says, compared to more than 20 weeks for products coming from offshore. “That will be our competitive edge.”
This short turnaround between order and delivery is attractive to a supply chain that is hesitant to put material on the floor. “We plan to service customers with quick lead times in an environment where people don’t want to carry big inventories. They can make material commitments in a much smaller window, so their crystal balls don’t need to be nearly as long range,” Zimmer says.
The forge is in working order, but the company continues to refine its production process. “We’re very close to being able to go to customers and start booking business,” Zimmer says. Ultimately, Universal will be satisfied if it can capture 5-10 percent of the domestic tool steel bar market with its North Jackson product.