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Plate Market Report

A Little More on Their Plate

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The carbon plate market is bouncing back from difficult 2016, but how much won’t be known until Section 232 investigation is complete.

The market for steel plate through the first half of 2017 is improved, though uncertainties are keeping it from reaching earlier predictions. Chief among the question marks is the pending report on the Section 232 investigation, plus the future of the promised federal spending on infrastructure.

Plate demand was a little stronger earlier in the year, but has backed up a little in recent months, says Amy Bennett, principal consultant for American Metal Market and Metal Bulletin Research. What’s unknown is how much of that retreat is based on seasonal factors, an easing of market sentiment or underlying market dynamics.

Pauline Malone, vice president of procurement at Rochester, N.Y.-based Klein Steel Service Inc., says orders have not been robust. However, her company has experienced an increase in quoting activity, including some for projects that haven’t yet moved forward.

Disparities also exist in the type of product. Certain niche markets, such as high-strength and quench and tempered plate, are performing better than commodity grades, says Marc Lerman, chief commercial officer at Steel Warehouse, South Bend, Ind.

It also varies by type of plate, says Charles Bradford, president and metals analyst with Bradford Research Inc., New York. While shipments of coil plate are up 2.1 percent year on year, cut-to-length plate shipments were down 7.1 percent.

Still, with better conditions forecast for the back half of the year, full-year plate demand could be up 5-10 percent for the full year, says Bill Hickey, president of Chicago-based Lapham-Hickey Steel Corp.

The macroeconomic signs are still pointing to a healthy manufacturing economy. In the Institute for Supply Management’s monthly PMI, the June reading of 57.8 percent was the highest figure since August 2014. Additionally, the New Orders Index moved up to 63.6 percent from 59.5 percent in May.

Similarly, on the construction side, the Dodge Momentum Index in June was up 1.1 percent from May, while the American Institute of Architects’ billing index moved up to 54.2 percent from 53.0 percent in June.

North American mills have been taking steps that would indicate some optimism in the market. During Nucor’s most recent earnings conference call, Chairman, President and CEO John Ferriola said he expects his company’s plate volumes to be strong. The company has seen gains at its Hertford County, N.C., mill, which could see increased shipments for military applications. Additionally, the company is ramping up the Longview, Texas, specialty plate mill it acquired from Joy Global in 2016. That mill will provide Nucor the potential to produce previously unavailable plate grades for new applications.

At Indian-owned JSW Steel, the company is embarking on its plans to make its Baytown, Texas, plate and pipe mill the “Pipe Mill of the Future.” As part of plant modernization efforts, the company will install an electric arc furnace with an annual capacity of more than 1 million tons, and possibly a 102-inch wide caster. It plans to complete the upgrades by early 2019.

The modernization has been prompted, in part, by expectations that President Trump’s vow to require American-made steel for new energy pipelines will increase domestic demand for X65 and X70 line pipe. While it doesn’t apply to Trump’s moves to approve the controversial Keystone XL and Dakota Access pipelines, there are still a lot of pipeline repairs and upgrades that are boosting demand, Malone says.

There was some excitement earlier this year that price hikes signaled the energy markets were on the road to recovery. That enthusiasm has muted somewhat as those prices have largely plateaued.

After bottoming at about $30 per barrel early last year, West Texas Intermediate oil prices briefly jumped up nearly $55 per barrel early in 2017, but they have been trading between $42 and $48 over the past few months. Natural gas prices have been selling at between $2.90 and $3.50 per million Btu this year, up from as low as $1.80 per million Btu early in 2016.

The last few years of weakness in the energy sector hit plate demand on several fronts, says John Tumazos, president and metals analyst for Very Independent Research LLC, Holmdel, N.J. Not only did the energy weakness curtail plate demand for energy tubulars, but railroads began canceling orders for oil tank cars starting in late 2016. “Even though oil prices have since rebounded somewhat, those orders have not yet been restored,” either by the railroads or by energy companies, he says.

Drilling activity is on the upswing, with Baker Hughes Inc. reporting there were about 950 drill rigs operating in the United States in July, up from about 400 in May 2016 when the market bottomed out. This is resulting in the pickup of investments in both West Texas and elsewhere in the nation’s shale plays, Charles W. Schmitt, president of SSAB Americas told investors at the company’s June Capital Days event. Those increased activity levels are increasing demand for both line pipe and downhole oil country tubulars, he says.

Moreover, there will likely be extended demand for plate for new energy compressor stations over the next five to ten years, says Mike Emerson, owner and CEO of Huntington Steel & Supply Co., Huntington, W.Va.

Plate is also getting a push from alternative energy, particularly wind power, helped along by production tax credits. The American Wind Energy Association reports the 908 utility-scale wind turbines installed in the first quarter of this year represents the wind industry’s strongest start in eight years.

Another big driver of plate demand is construction, which has grown at a somewhat disappointing rate. Almost 10 years past the recession, the market hasn’t come close to previous peak levels. “That is partly due to the fact that we aren’t seeing the anticipated push in infrastructure investment,” Bennett says.

Overall construction spending was up 6.1 percent year to data through May, according to the latest U.S. Census Bureau data. However, public works construction was down 3.5 percent year to date, including a 1.3 percent decline for highway and street construction. Highway and street building includes the plate-intensive bridge construction segment.

Somewhat surprising, there hasn’t been the expected bounce from the late-2015 signing of the FAST Act, the first long-term highway bill in over a decade. And Trump’s proposed $1 trillion infrastructure spending plan has not yet gained traction, or much attention.

The lack of action on infrastructure is vexing to industry players, given the professed bipartisan support and the widespread recognition of the need to improve the nation’s infrastructure. The big question remains how any infrastructure spend will be paid for, says Jack Corrigan, president and CEO of Charles C. Lewis, Springfield, Mass. The Republican-led Congress is hesitant to raise taxes, including the federal gasoline tax that has traditionally been used to fund such legislation.

Even with the feet-dragging, the plate industry has still made some inroads in the infrastructure segment. SSAB’s Schmitt says there have been numerous advancements in bridge steels using higher strength material that provides lighter weight and cost savings, helping plate to better compete against concrete.

Plate is also benefiting from heavy equipment showing some early signs of improvement. “But it is not yet at the stage where there is a booming recovery,” Bennett says, especially with equipment exports continuing to be held back by the lackluster global economy and the strong U.S. dollar.

While plate prices moved up nearly 55 percent from last October to this April, coinciding with the launch of the investigation, they have since eased back. They dipped 3 percent through June, as plate imports reached their highest levels since last July. This, Bennett says, is due to a combination of the pricing differential between foreign and domestic offerings and overseas mills exporting material before Section 232 quotas or tariffs go into effect.

In mid-June, however, Nucor announced a $30 per ton price hike for carbon, alloy and heat-treated plate, which was quickly followed by the other domestic plate mills. That hike, however, has been met with a lot of resistance, with only about $10/ton taking hold as of late July. Bradford says he isn’t surprised, given that it is rare for mills to increase their prices over the traditionally slow summer months. “It could be that it was announced just to stop the price decline,” he says.

Meanwhile, the industry is awaiting the outcome of the Section 232 investigation, which has already been delayed several times. At this point it remains unclear what quotas or tariffs will be imposed, on what steel product imports and from what countries.

Bennett doubts that plate prices will move up until a decision on the Section 232 is reached. However, should the government deliver either a broad-based ruling or if it specifically includes plate, and the ruling is stringent enough to tighten domestic lead times, prices could jump as much as $50 per ton by the end of the year.

Currently domestic plate lead times are relatively normal and consistent, according to Corrigan, who places them at about six to eight weeks for carbon plate and 12 to 16 weeks for alloy plate.

While plate has some military applications, it isn’t a given it will be included in the Section 232 determination, Tumazos says. The volumes going into defense are not sizable. “Wars aren’t won with armored vehicles,” he says. 

Producers remain optimistic. “We are hopeful that we will get a very broad-based Section 232 ruling that will include virtually all products – one that will not target any one particular product or any one particular geographical area or region of the world,” Ferriola said.

Even without a ruling, Malone says, the Section 232 is having an effect, as some plate imports have already been canceled because of all the unknowns. Likewise, service enters remain cautious about their purchases with the current uncertain market conditions, even with the possibility of tighter supply.

“It is too risky to build up inventories,” Lerman says, claiming his company isn’t willing to speculate as to what the future holds for the plate market. “We are more interested in helping our customers get through this volatile time.” His biggest concern with the Section 232 is its impact upon Steel Warehouse’s manufacturer customers, noting that he is already seeing some companies importing certain components rather than making them.

“Right now there is just a lot of bluffing and talk. It is just a very big verbal battle,” Huntington Steel’s Emerson says. He believes the Section 232 is more likely to have a short-term supply side impact. “The problem is that the Section 232 would only restrict supply as opposed to improving demand,” Emerson says. “What we need to do is improve demand and the only thing that will do that is more infrastructure investment.”

Even without that jolt, it is widely believed that 2017 could be a better year for the plate market than 2016, which was not a very good year. “Orders are up for the first time in a number of years and both the industrial economy and construction is better than it had been,” Hickey says. 

The outlook is a little murkier for 2018. While further improvement is anticipated, the unknowns make forecasting difficult. The effects of Section 232, the status of infrastructure and the state of the energy sector will dictate how plate performs over the course of the next year.