Plate Market on Uphill Track
Rising prices and long lead times in the U.S. are drawing the attention of foreign plate producers.
By Myra Pinkham, Contributing Editor
The carbon steel plate market continues to improve on the back of moderately strengthening end-use demand. Combined with a tightening domestic supply, plate prices have risen steadily in the past year. Some experts say the market may be nearing an inflection point at which the lengthening domestic mill lead times could prompt a further surge of foreign product onto U.S. shores in the coming months.
Several major domestic plate mills have put their customers on controlled order entry with lead times stretching out 12-14 weeks. Tight availability from the mills has already constrained some sales for service centers, including the Castle Metals unit of A.M. Castle & Co., Oak Brook, Ill., says Steve Kaminski, director of sales and marketing. He fears it will have an even greater effect on the market going forward.
The supply situation has forced service centers to be more creative with their plate purchasing strategies, says Mark Trimble, vice president of sales and marketing for Huntington Steel & Supply Co., Huntington, W.Va. His company has been buying more customer-specific products as opposed to standard stock sizes and grades. "We can only do that in times like this when the market is tight and we are confident about demand. We don’t want to have any inventories we can’t sell."
Pauline Malone, vice president of procurement at Klein Steel Service Inc., Rochester, N.Y., keeps the supply crunch in perspective. She notes that mill lead times extended gradually, so service centers had time to adjust. "There are, however, some items we need to search harder for," she admits.
The turning point for the plate market may have been the closure of Evraz Claymont Steel, Claymont, Del., at the end of 2013, says analyst Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. While the minimill had a rated capacity to produce 500,000 tons of plate, it only produced 348,000 tons in 2012 and 171,500 tons in the first half of 2013.
Given today’s improved market conditions, Russia-based Evraz could consider restarting Claymont, says Amy Bennett, principal consultant for Metal Bulletin Research, though the company has announced no plans to do so. In fact, a July 7 report by Anthony Rizzuto, an analyst for Cowan & Co., fueled speculation that Evraz is considering the sale of all its North American assets, a claim the steelmaker firmly denies.
Meanwhile, SSAB of Sweden, parent company to SSAB Americas, Lisle, Ill., is in the midst of acquiring Finnish steelmaker Rautaruukki Oyj (Ruukki), which just last year opened up a sales and distribution office in the United States. SSAB is considering adding as much 1.2 million tons per year of melting capacity at its Montpelier, Iowa, mill to support growth of both as-rolled and heat-treated plate products. This increase would include an additional 800,000 tons of finished product capacity, plus another 400,000 tons of slabs for its Mobile, Ala., mill. According to Metal Bulletin’s company database, SSAB’s Montpelier mill currently has the capacity to produce nearly 1.25 million tons of plate per year.
Canadian plate producer Essar Steel Algoma Inc., Sault Ste. Marie, Ontario, recently filed for Chapter 15 international bankruptcy protection. Similar to Chapter 11 in the United States, Chapter 15 will give the company protection from creditors in the United States while it attempts to restructure its finances in Canada. This will only affect unsecured creditors and not the plate marketplace in general, say the experts.
Plate demand forecasts
Carbon plate demand is good, but not great, says analyst John Anton, manager of the steel service at IHS Inc., Washington. Consumption of steel plate by the construction sector continues to disappoint. While construction activity is up overall, it is not nearly as strong as expected at this point in the economy and is still well below pre-recession levels, Anton says. Nonresidential construction, where most of the plate is consumed, is being held back by the drawn-out recovery of residential building. Housing starts, while much improved at about 1 million units a year, are still well below the normal rate of 1.6 million.
Metal Strategies forecasts underlying plate demand will grow 3-4 percent this year and next, with some variance by sector. Markets expected to see declines this year include: public works construction, down 0.2 percent; line pipe, down 8.2 percent; industrial equipment, down 1.2 percent; and mining equipment, down 5.5 percent. Markets expected to see gains include: Class 8 heavy trucks, up 19.5 percent; railcars, up 14.1 percent; highway, street and bridge construction, up 9.7 percent; and construction vehicles, up 8.5 percent.
Much of plate suppliers’ future prosperity depends on what happens in the plate-intensive road and bridge sector in the next few years. According to the National Steel Bridge Alliance, bridge construction consumes 550,000 to 750,000 tons of steel per year, including plate and other forms. The United States is home to thousands of steel bridges in need of extensive repair or replacement. Most of this potential infrastructure development is dependent on government action, however, notes Lynn Lupori, managing consultant for Hatch Management Consulting, Pittsburgh. "But to date it hasn’t been happening at the pace that is needed due to funding issues."
Revenue from federal gasoline tax receipts has declined as vehicle fuel efficiency has increased, leaving the U.S. Highway Trust Fund severely underfunded. Congress is currently debating how to pay for improvements to the nation’s crumbling infrastructure. Meanwhile, the latest highway funding bill is set to expire Sept. 30. Lawmakers are expected to approve another stopgap measure to continue funding for current projects, but state and local agencies complain that such short-term measures don’t give them adequate time to plan.
A long-term highway bill would be a definite plus for the plate market, says Sheldon Tenenbaum, senior vice president for supplier development at Reliance Steel & Aluminum Co., Los Angeles. "Infrastructure spending is the best way to kick in economic growth."
The booming energy sector is not fueling plate demand for transmission pipelines to the degree many expected. Metal Strategies estimates shipments of plate used to produce large-diameter line pipe will decline about 8.2 percent this year, on top of a 9.7 percent decline last year.
Regulatory problems, such as those that have stalled the Keystone XL pipeline, have not helped. But a bigger issue is energy companies’ inability to get money for big pipeline projects. Funding generally requires customers to commit to long-term fixed contracts, which they are reluctant to sign today since they have other options. An increasing amount of oil is being moved by railcar, note the experts.
Demand for plate to construct railcars, particularly the tank cars used to transport oil, has been quite strong, says Plummer, up 14.1 percent this year following a 12.3 percent increase last year. Currently, about 58,000 railcars are being built annually, the majority of which are tank cars for oil and covered hoppers for fracking sand. That number will grow to about 65,000 railcars by 2020.
But Anton warns this is a cyclical market. While railcar builders have full order books today, the push for tank cars won’t last indefinitely. Pipelines will eventually be built from drilling areas that are currently underserved, taking some of the market from rail.
Production of heavy equipment is another big plate market. Construction equipment has regained pre-recession levels and is expected to grow another 8.5 percent his year. Mining equipment continues to struggle, likely to decline a further 5.5 percent in 2014, Metal Strategies estimates. Kaminski and Trimble point to signs of hope in the mining equipment sector, however, largely due to a bump in export demand.
Lawrence Kavanagh, president of AISI’s Steel Market Development Institute, reports some new potential from wind towers. Technological improvements are in the works that could make wind power cheaper and more practical. Each wind tower contains an average of 250 tons of steel plate.
David Ward, spokesman for the American Wind Energy Association, says the industry might get a boost from the EPA’s proposed rule limiting carbon emissions from existing power plants. A record number of new wind towers currently are under construction or development. Future demand depends on whether Congress reinstates the federal alternative energy production and investment tax credits that subsidize the wind energy industry. Those credits expired in 2013, but were applied to projects already in progress.
Prices on the rise
The expanding demand and tightening supply have prompted domestic mills to announce several price increases this year, the latest of which was in June. As a result, cut plate prices reached $860 per ton in early July, up from about $750 at the end of 2013 and $720 at the same time a year ago, says Bennett at MBR. Even with the current long lead times, prices are unlikely to move up any further due to rising U.S. imports, she adds. U.S. plate imports through May grew by 69 percent compared to the first five months last year, attracted by a price differential now at $130-$140 per ton. Import license applications indicated that June plate imports would increase 27.2 percent over May.
"With such long lead times, the downside to purchasing imports is minimal," says Tenenbaum at Reliance. A buyer can get hurt if domestic prices come down by the time the foreign steel arrives, but that is unlikely as long as domestic lead times are roughly equal to those for foreign plate.
Foreign prices have bottomed out, so the pricing differential is unlikely to widen any further, says Josu Pina, Toronto-based vice president of sales-Americas for Finland’s Ruukki Metals.
Even in this tight market, service centers continue to be cautious about their buying. MBR estimates the months of plate supply on hand at U.S. service centers in June was a relatively lean 2.8, says Bennett.
Like many other service centers, Castle Metals has grown its inventories modestly, just enough to build in some safety stock to ensure its response time and service level, says Kaminski. "Hopefully, most service centers will continue to keep their inventories lean," Tenenbaum adds. "Having extra inventories on hand is the best way to lose money," especially if plate imports begin to exert downward pricing pressure.
Pina is doubtful about that risk. "For the next few months at least, prices should remain solid and possibly even increase further if the market continues to tighten."
Bennett cautions that plate could see a price decline in the fourth quarter, however, especially if scrap prices weaken at the same time imports increase.