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Flat-Roll Market

Flat Roll's Long Road

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MCN Editor Beth Gainer The flat-roll industry is experiencing strong demand despite high steel prices, but new capacity may be a game changer.

Flat-roll steel remains in high demand in many sectors. “The strongest end markets are in the manufacturing sector,” says Christopher Plummer, Group CEO of Metal Strategies Inc. West Chester, Pa. 

Most markets are steady in the flat-roll arena, according to Becky E. Hites, president, Steel-Insights, LLC., Atlanta. “It’s pretty strong across the board. Most markets are strong with the recovery from the slowdown of the pandemic,” she says.
Mike Young, president and CEO of Klein Steel Service, Rochester, N.Y., agrees. “Across our segments, demand for flat-roll steel is fairly strong. We’ve seen a little softening in the last few weeks, but I wouldn’t characterize it as a big drop,” he says. 

Chris Turner, sales manager of Steel Summit Holdings Inc., Murfreesboro, Tenn., adds that the automotive sector’s demand for flat-roll is solid, but the chip issue is ever-present. 

Despite the chip shortage, however, the automotive industry has shown resilience. “Some of the automotive manufacturers are busy and they really haven’t skipped a beat, and other ones have had significant shutdowns,” says Brian Hickey, president of Lapham-Hickey Steel Corp., Bedford Park, Ill.  He adds that some of his company’s customers tied to automakers have had extended shutdowns, but it’s not a severe problem. “We have seen a little bit of a slowdown, but it hasn’t been like they’ve completely turned off their demand,” he says. 

While the demand for flat-roll is solid, industry professionals must still contend with high steel prices. In July 2020, hot-rolled coil was about $500 per ton. However, in July 2021 one ton of hot-rolled coil was selling for a little over $1,800 per ton, according to Plummer.

And it’s anyone’s guess when steel prices will come down. “I think we’re waiting to see when the bubble is going to burst,” says Turner. “We expect that the mills are going to greatly increase their price, and we’ve seen at the CRU that the price keeps going higher, so the question really becomes, is it really sustainable?” 

“[Pricing is] going to have to come down at some point because we are seeing record highs,” he continues, “but we don’t know when this is going to happen.”

He likens what is happening in the steel industry to what has happened in the lumber industry. “Lumber got so high that people stopped buying. At what point has the consumer had enough and they are going to stop buying?” 

However, Plummer is confident that at some point in late 2022 to early 2024, the price of steel will eventually “come down to $600 to $800 a ton, and the metals spread, which is over $1,300 a ton, will return to somewhere close to $300 to $400 [a ton]. It’s not like prices won’t correct.”

So will the supply chain be able to handle pricing decreases and demand increases? The answer is a resounding “yes,” according to industry professionals. 

Hickey believes the supply chain is ready and able to handle a decline in pricing. “We’re coming off a year that was probably a record year for most of the people in the steel supply chain, so balance sheets are strong,” he says. “Pricing is going to go down, and we all recognize that and it can be and probably will be painful at some point on the way down, but in previous down cycles when you’ve had a big decline in prices typically, that came from a huge drop in demand.” 

The key is managing assets and inventory, as Young points out. “I can tell you from a Klein Steel perspective, we manage our assets, and when I say that we manage our assets, we try to manage our inventory turn rate at all times – good, bad, indifferent.” Turner points out that the Great Recession taught many service centers how to best manage their inventory by “keeping it as lean as possible, but your negotiations with the mill have to be on the level to protect you as well.” 

Although pricing has been high, experts believe this has not affected demand for the product. Turner observes that at one point people would pay whatever they could to get material. “Now I think they’re more strategic, like ‘Do I really need it at that price?’ ‘Can I wait?’”

According to Steve Gottlieb, president and CFO of Ratner Steel Supply Company, Minneapolis, individuals are not going to buy any extra steel because it will probably be devalued. “I don’t think people are building extra inventory because of the high prices; all of our customers are doing the same: they’re only buying what they absolutely have to have. And that’s a good thing; we don’t want a lot of extra inventory within the whole chain because that is one thing that will create a drop in prices really quickly.”

With the high steel prices, some industry professionals have turned to imports. The topic of imports coming into the U.S. market garners mixed feelings among industry professionals. “Until new capacity comes on, imports are really needed to fill the gap that we’re experiencing and that’s really the first time we’ve seen any increase in imports in quite a long while,” says Plummer. “Imports are starting to take advantage of the very high prices and the very long lead times, and it’s really hurting domestic mills at this point.”  

The price of steel in the U.S. “is twice the price of the world market,” according to Hites. Therefore, some people are turning to imports, albeit cautiously.

Hickey agrees that the price of steel makes imports an attractive solution. “It’s just with the price delta right now, we see imports become a little more attractive,” he says. However, he notes that importing has its drawbacks, one of them being the Section 232 tariffs. Gottlieb adds that imported material is “$300 to $400 a ton cheaper than buying domestic. However, now you’ve got a lot of risk. One risk is, when you import, you may not see [the product] for three or four months.” Young says that some import pricing is fairly attractive based on current domestic pricing, “but there’s a pretty good risk in when it gets here and because the lead time sometimes is fairly long,” he says, “and then some of the port congestion is holding it up.”

More Capacity
Plummer notes the industry is prepared for new capacity. Nucor is building a $2.7 billion, 3-billion-ton-per-year electric arc-based sheet steel mill, and U.S. Steel will add a $3 billion, 3 billion-ton-per-year EAF-based sheet steel mill. Both plants are intended to be commissioned in the first half of 2024.

The shutdown of old capacity is a good thing, according to Hites. She says that a few blast furnaces perhaps would represent 3 million tons of capacity, but they are antiquated. “They are inefficient mills, and they might make $2,000 hot-roll band price, but they wouldn’t make money at a $1,000 ton hot-roll band price,” she says. “I’m very pleased with the discipline in cutting out old, inefficient capacity, and I’m very pleased with the industry leaders continuing to invest capital into new technology,” she says. 

Hickey also welcomes the new capacity, believing it helps the market. “We need healthy steel mills, healthy service centers and processors and healthy end-user customers – people who are using steel,” he says. “We want to make sure our customers at the end of the day are competitive and are producing parts because without the customers making the parts and using the parts, we don’t have the demand; the steel mills don’t have the demand. I think that’s something that’s important is that all three legs in the supply chain try to remain healthy, and I think additional capacity will help get us to a level that is more palatable for some of the end users.”

“The market actually did need some new capacity,” agrees Gottlieb. “If you look at the amount of tons that have been taken out of the market through furnaces that have been permanently shuttered, the amount being added from SDI and Nucor and others going forward is really just replacing a lot of those tons.” 

He believes the shuttering of “antiquated” furnaces was inevitable and is good for the industry, and that the new technology will make quality steel. 

Not only are industry professionals counting on new technology, but they are counting on reasonable lead times. Presently, receiving material in a timely fashion is still a challenge. “Everybody needs material,” says Turner. “The mills are only able to produce so much; they’re not quick enough to open more capacity from what they’re doing, so I think that creates certain challenges when you need material.” 

Hickey says Lapham-Hickey is able to get the steel that they need to meet customer demand, even though industry lead times are still extended. However, “The lead times on some of our specialty products – high carbon products, we do some coated products, some light gauge coated products – are very extended.” 

“It’s not readily available,” says Gottlieb. “You have to have great relationships with your suppliers to continue to get steel. Is it as bad as it was January through June? No, it’s a little easier, but again, right now, we’re not really seeing any availability until year-end.”

As we quickly head into 2022, Gottlieb is not sure of what the next year will look like, as many variables present themselves, such as shortages of chips, labor and manufacturing parts. “A lot of our customers who are busy still can’t get the product out the door because of those shortages,” he says. “So for 2022, we are very optimistic, but there are variables in place that we’re nervous about.”

While Young expects demand to be good through the first quarter of 2022, the company and its customers are also experiencing an employee shortage. And, to complicate matters, there has been a resurgence of COVID in New York, fueling the uncertainty the company has about 2022. 

Hickey describes his company’s expectations for 2022 as “very bullish.” Serving a diverse group of end users has helped his company be “pretty much across-the-board busy, especially in consumer products, industrial products – and anything where individuals and businesses are using metal products,” he says. “We think there’s going to be potentially double digit demand growth with most of our customer base, so we are expecting another very busy year next year.” 

Keeping inventories at good levels is the best defense against the inevitable downturn in pricing.
(Photo courtesy Klein Steel Service