For the first time in years, all segments of the heavy equipment market are pointing in the right direction, resulting in boom times for the manufacturers and their suppliers.
The current state of the heavy equipment market is a perfect microcosm for the steel industry as a whole. Shuttered immediately upon the arrival of COVID in 2020, the sector is now in a seemingly fruitless effort to catch up to demand.
The market for large pieces of equipment – whether those used in the agriculture, mining or construction sectors – is among the hottest it has been in ages. And rarely have all segments of the business been lined up so positively.
The numbers are somewhat staggering. Industry giant John Deere forecasts double-digit growth for all major sectors in 2021, and for that demand to carry over into 2022. Rival executives from Caterpillar have a similar sunny outlook for their heavy machinery products.
What’s driving the demand? Obviously, the growth is building off the sluggish production and sales figures of the coronavirus-ravaged 2020. But there’s more to the story than just bouncing off the bottom.
The major run-up in all types of commodities pricing is a boon for the industry, even when they too feel the pinch on the input side. With steel hitting record pricing, the OEMs are seeing increased costs for their raw materials. However, as Caterpillar Chairman and CEO Jim Umpleby said at the company’s first-quarter conference call, “There is continued risk on material inflation. But overall, commodity increases are net positives at Caterpillar because it helps our customers buy more.”
And that story is taking place again and again in the heavy equipment sector. The massive shortage of lumber will drive gains in the forestry segment for all major players. “We now expect the industry to be up between 15 percent to 20 percent as lumber demand remains very strong, particularly in North America,” said Brent Norwood of John Deere.
The same is true in agriculture.
“Over the course of the last nine months, fundamentals for our large ag production systems have steadily improved, driving stronger economic results for our customers and enhanced visibility for our equipment order books,” said Cory Reed, vice president – Agriculture and Turf division for Deere. “While government support is expected to decrease this year, principal crop cash receipts in the U.S. are forecast to increase 30 percent, with improvements in commodity prices offsetting the decline in government aid.”
And it isn’t just production agriculture carrying the load. Deere executives note the small ag and turf business is also performing well, a carryover from the pandemic. The stay-at-home orders and other shutdowns resulted in people putting more emphasis on home-related projects, as well as drove some urban residents to look for homes with more space.
The Association for Equipment Manufacturers backs up these numbers. A report from the trade group and Oxford Economics suggests the machinery market for both construction and agricultural equipment will increase by more than 15 percent in 2021.
The service center companies who supply the market have taken notice of the unusually strong conditions.
“At the beginning of COVID-19, we pulled in our horns and started to prepare for a 2008-09 style problem. That didn’t pan out, and those customers who shut down are so far behind now they can’t catch up,” says Mike Donahue, vice president of sales and marketing for Farwest Steel, Eugene, Ore. “I don’t think our customers have been this bullish in quite some time.”
The story is repeated in the Midwest, where O’Brien Steel supplies some of the biggest names in the business. “A year ago at this time we were in hunker-down mode, not knowing what the future held and not wanting to guess on the wrong side of it. Come August or September, we realized we were doing OK, it’s down but not great. Then October-November hit and prices started going crazy,” says Mike O’Brien, vice president for the Peoria, Ill.-based service center company. “We’re swamped now.”
Dan DeMare, director of sales for Heidtman Steel Products, Toledo, Ohio, says heavy equipment bounced back even faster than automotive and other end markets. “I think it rebounded faster because most other sectors had to determine if demand was real. In heavy equipment, particularly in mining and agriculture, they saw that even if it wasn’t long lasting, they needed to capitalize on the market now.”
The ag and mining segments were the first to come back, driven by higher commodity prices. But the construction segment defied some predictions with gains as well. “One of the byproducts of 2020 was warehousing. It’s not just buying a warehouse and repurposing it. That takes clearing land, which requires heavy equipment. That one sector drove the construction market,” says DeMare.
And, to the pleasant surprise of all, the bump wasn’t short-lived, but is likely to stretch well into 2022.
“The outlook is positive. Agriculture is supposed to be really good, looking at the global market and the need for soy, corn and things like that. And I think forestry will be strong, as we look to recover from the lack of supply of wood products,” says Josh Kneidl, director of marketing and project management for Benjamin Steel Co., Springfield, Ohio.
All of that without even looking at the room’s resident gorilla, the potential for a major infrastructure spend and its effect on the heavy equipment space. While the construction sector is doing well given the relatively strong market for housing, a genuine public works bill would push demand for those products to extraordinarily high levels.
Oddly, despite the obvious need for major infrastructure upgrades, there are worries how well the system could handle that push right now. “My concern for it is, none of us can find enough employees. We all support [an infrastructure bill], but I wonder where they’re going to find the people to do it,” says O’Brien.
Likewise, given the tight supply of all sorts of resources, how much more would a major spend cost than if undertaken at other times? “If infrastructure landed in a super big way, I’m not sure how it’s going to get done,” says Donahue. “And the prices would be ridiculous.”
Fortunately, as DeMare notes, the lag between a proposed plan and dirt being moved is considerable, as well as the time it takes to complete the projects. “You can’t do all your roads and bridges at the same time,” he says. “Overall, you look at that massive stimulus and how it’s going to drive capacity, but it’s going to be spaced out over a 10-year period of time.”
Of course, the major issue facing the industry now is the availability of raw materials, notably steel products. “Material right now is king. If you have it, you can sell it,” says Lee Adler, director of sales for Benjamin Steel.
Having it is the trick. “If we had all filled our warehouses to the brim prior to this, we would look really smart,” jokes O’Brien.
The issues are prevalent throughout the supply chain. Donahue says his company receives regular requests from OEMs, suggesting the customers are booked through the end of the year and asking for some help on weldments or processing. “It’s stuff you love to hear, but the reality is, we’re full. We have to go through some hoops to structure things so we don’t let them down.”
There is some hope on the horizon, with planned capacity additions from the mill community getting closer to realization. “We’ve got six million tons coming online. You won’t see that until the first half of 2022. That’s when I think you’ll see the supply constraints ease,” DeMare says.
The supply limitations have naturally resulted in record prices for steel and other materials. “Nobody likes it, but they’ve got to keep their production running. They’ve got to make their products, so they’re just trying to find the material,” says Kneidl.
O’Brien says his worry is his customers’ ability to raise prices. “Service centers are better at this than fabricators sometimes.” To date, the price has been less of an issue than simply obtaining the metal.
Of course, steel is only one item in tight supply. Donahue says it’s just one leg of a three-legged stool of capacity constraints, with labor and transportation serving as the others. “I think everybody is in the same boat. Nobody can do it all, so they’re just pushing out lead times and pricing as a mechanism.”
The tightness on everything should extend the strong conditions for the market into next year. “We don’t anticipate a significant increase in dealer inventories in 2021,” said Caterpillar’s Umpleby.
DeMare believes the industry is looking at the beginning of a nice, long upcycle, trends typically based on the age of equipment, new technology and commodity pricing. “It’s very cyclical. We see year-over-year steady increases and then a huge reset. I think this will probably run through 2024 to 25.” Caption:
The nationwide lumber shortage will drive increased demand for forestry products.
(Photo courtesy John Deere)[Sidebar]
Hardox HiAce Offers a Strong Defense Against Corrosive Wear
For some heavy equipment vehicles, strength is only part of the equation. For solid waste refuse trucks and other machinery, corrosion-resistance is an equally valuable characteristic in a metal.
Enter Hardox HiAce, the latest development from SSAB in its Hardox wear plate series of steels. HiAce was developed for the solid waste and intermodal container markets, to maintain its integrity in environments between 3 to 6 on the pH scale. The ACE stands for Acidic Corrosive Environment.
Jeff Pallitto, SSAB’s technical development manager in the Eastern U.S., was involved in project development using Hardox HiAce. Currently, the steel is only produced at the company’s Swedish headquarters facility, though the objective with all of its product introductions is to eventually have it made locally, which would be in Alabama for SSAB.
It was originally designed for use in solid waste disposal trucks and similar vehicles, where minerals and wood chips can create an acidic environment, particularly in areas exposed to heavy rain or humidity. Those conditions accelerate the wear rate on traditional steel products. The higher wear resistance of Hardox HiAce provides for a longer service life with its superior combination of strength and corrosion resistance, the company claims. “You’re looking at a steel that if you’re upgrading from A36 or even stainless 304, you’re talking somewhere in the neighborhood of five times the strength. Now, that doesn’t mean you can use one-fifth the material, but you can use one-third. It’s a substantial weight savings,” Pallitto says.
He notes that for a typical vacuum truck, the use of Hardox HiAce can cut its weight about 37 percent, which can benefit the municipality in numerous ways. “They’re either taking that weight off the road, increasing the capacity of the tank they’re already using, or, some have gone as far as adding an extra segment to the tank. They’re getting almost a 50 percent increase in volume at darn near the same weight,” he says. “The lightweighting available, because of the increased strength and corrosion-resistance, is pretty remarkable.”
Besides its target markets, the company has found additional applications for the material inside and outside the heavy equipment space. It can be used in buckets for dredging or site cleanup, any application where there is a combination of wear and corrosion taking place simultaneously.
“We’ve seen it being used in the mining industry for when large tankers pull water out of mine retention ponds. “You never know what’s in those ponds,” he says.
An additional application is in municipal dump bodies, those vehicles that may be used to haul sand and gravel in the summer months, then turned around to spread salt in the winter months. Its effectiveness with the latter issue was a pleasant surprise to the developers.
“Even though material was not designed to be resistant to salt corrosion, which is on the other end of the pH spectrum, we’re seeing encouraging results in some applications,” Pallitto says.
The material is rated 450 on the Brinell scale, and is part of the Hardox 450 platform.
Both grades have high impact toughness, 27 J at -20°C (20 ft-lb at -4°F) and equal workshop properties. Under non-acidic wear conditions they provide the same high service life. “The difference is when acids are present,” Pallitto says.
Another benefit to the material, the company claims, is its ability to withstand some of the issues that can accompany products higher up in Brinell. Metals that hit or exceed 500 Brinell can be susceptible to stress-corrosion cracking. That isn’t an issue with Hardox HiAce, Pallitto says.
Hardox HiAce was designed for use in solid waste refuse trucks.
(Photo courtesy SSAB)