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August 2012
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Buyers Put Plate on the Back Burner

2012 started off strong for U.S. plate suppliers, but the market has lost some momentum as buyers wait for prices to bottom out.

While carbon plate remains one of the strongest domestic steel markets, it has lost some steam in recent months. Concerns about the global economy, coupled with downward price pressure from rising imports and declining scrap costs, have prompted service centers and OEMs to hold back on all but the necessary plate purchases.

“Demand has been solid across most plate consuming sectors,” including mining, heavy equipment, rail and energy, says Scott Meredith, director of sales and marketing for the Flat Products Group of Nucor Corp., Charlotte, N.C.
 
Ronnie Masliansky, general manager of marketing and product control for ArcelorMittal USA, Chicago, reports that demand for carbon plate during the first five months of 2012 was the strongest it had been since 2008.

Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa., places carbon plate demand at 4.7 million tons through May, up 16.3 percent from 4.1 million tons shipped in the first five months of 2011.

“However, even these stronger markets are beginning to face headwinds due to a slowing U.S. economy,” Meredith says.

The June Institute for Supply Management’s Manufacturing Purchasing Managers’ Index is concerning, says Amy Bennett, principal consultant for Metal Bulletin Research. At 49.7 percent, the PMI indicated a contraction in the manufacturing sector for the first time since July 2009. Nevertheless, the Federal Reserve Board reports that June industrial production was up 0.4 percent compared with May, and up 4.7 percent compared with June 2011.

Jeff Simons, vice president of marketing for O’Neal Steel Inc., Birmingham, Ala., predicts plate purchases will rebound soon. “Both demand and prices will probably bump along the bottom for the next four to six weeks before, hopefully, coming back late in the third quarter or early in the fourth quarter,” he says.

Among plate’s strongest markets, even wind towers have lost some velocity, say steel executives. The wind tower market is a big consumer of steel as each tower contains several hundred tons of plate. Makers of the power-generating windmills are pausing while they wait to see if federal production tax credits will expire at the end of this year. Low natural gas prices, currently at $2.75-$3.00/MMBtu on the spot market, are depressing demand for wind power and other alternative energy sources.

Meanwhile, the strength of the conventional energy sector—which requires heavy equipment and rail cars to move coal and oil extracted from the nation’s shale deposits—is having a positive effect on demand for carbon plate, Masliansky notes. Likewise, the addition and replacement of pipelines used to transport oil and natural gas to consumers is fueling plate orders. “And there is more design and construction going on for nuclear energy plants than there has been in the past 20 to 30 years,” Simon notes.

Year to date through May, rail car shipments were up 20 percent versus the first five months of last year. Shipbuilding also grew about 20 percent year on year. Shipments of construction equipment, including exports, were up 9.2 percent in the same comparison, Plummer says.

Demand for plate used in bridge construction and other public works projects is likely to get a boost as the effect of the new federal highway bill hits home. Leaders across industries were disappointed that Congress was only able to pass a two-year infrastructure bill, however, rather than a longer-term, more robustly funded measure.

Macroeconomic uncertainties continue to weigh heavily on decision-makers in steel, as in most other industrial markets. In the U.S., election-year politicking, frustratingly high unemployment and the lingering effects of the housing crisis continue to make buyers cautious. Internationally, the cooling of the Chinese economy and the Eurozone debt crisis, with its currency implications, stand to raise imports of lower-cost plate.

Steve Koch, senior vice president of operations for Reliance Steel & Aluminum Co., Los Angeles, notes that because the U.S. market has been stronger than those in Europe and Asia, the price spreads between domestically produced and imported plate have gotten very wide this year.

Because of this disparity, commodity plate imports have picked up significantly from various global regions, as well as specialty plate imports from Europe and South Korea, says ArcelorMittal’s Masliansky. “The impact on the domestic market has been significant. As demand has slowed, imports have picked up steam and caused price erosion in the spot market.”

According to prices published in American Metal Market, carbon plate averaged $860 per short ton in July, down about 4 percent from $896 in June and down 8 percent from this year’s peak of nearly $935 per ton in January.

“Perhaps the domestic mills didn’t react as quickly as they should have in bringing down prices,” Koch says. But even with the price declines already announced and further cuts likely in light of declining ferrous scrap prices, plate imports have shown no signs of abating. Foreign mills are bringing in high-quality plate at very aggressive levels, he says. “Both the number of offers and the number of countries they are coming from are increasing. Imports are even coming in from Japan, which hasn’t been exporting plate for a while.”

Based on the Commerce Department’s most recent Steel Import Monitoring and Analysis data, year-to-date cut plate import permit applications for offshore companies were up 52 percent through June versus the like period in 2011. The cut plate import share was 22.5 percent in May, up from 16.9 percent a year earlier, Plummer reports.

“We are keeping an eye on the imports and we’ll take the appropriate action, both commercially and politically, if we see this surge continue unrestrained,” said John Ferriola, Nucor’s president and chief operating officer, during his recent second-quarter conference call with analysts and investors.

Now that the domestic plate mills have lowered spot prices and the price spreads have narrowed to $20 to $30 per ton, as opposed to $100 per ton, service centers that have been ordering imports, and taking on the risky long lead times, are likely to back off, Koch says.

Inventories, though lower than past levels, appear adequate to meet current demand. The Metals Service Center Institute reports that U.S. service centers had 3.1 months of plate inventory on hand at the end of June, the highest level since December 2011.

Unlike in the steel sheet market, mills have not added much new domestic plate production capacity, though a few have made related investments. In May, ArcelorMittal commissioned a $60 million heat-treat line at its 160-inch plate mill in Burns Harbor, Ind., to increase its capacity to produce normalized plate, quench plate, and quench and tempered plate. SSAB Americas recently commissioned a new quench and temper line in Mobile, Ala., and is considering adding more capacity at that facility.

Meanwhile, Nucor has shelved plans to build a new plate mill, given the current uncertainty in the global business climate, said Daniel DiMicco, chairman and chief executive officer, during the company’s second-quarter conference call.
 
Some of the new heat-treated plate capacity appears to be finding its way into mill depot stocks at service center pricing. With both ArcelorMittal and SSAB opening new Houston depots, the line between mills and services centers seems to be blurring, says Koch at Reliance

Even mill lead times from rollings have shortened from the normal four to six weeks to as quick as two weeks in some cases, Plummer says, indicating that there is excess material in the marketplace. Given the ample supply of both domestic and foreign plate, service centers remain very cautious about their buys.

MBR’s Bennett predicts a possible pickup in plate purchasing in late August or early September, especially if global scrap prices increase as expected as the Turks go back to work after Ramadan. “But the big question is how long that will last before the usual seasonal slowdown hits late in the fourth quarter,” she says.


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