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Plate inventories have been coming down amid fears of further price declines. (Photo courtesy Reliance Steel & Aluminum Co.)

Plate Market Report

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Plate has been one of the best performers in the U.S. steel market in the recent past. There is, however, some cause for concern.  Recent aggressive price declines have led some industry observers to wonder how strong it will remain over the next several months. Those concerns are exacerbated by fears the U.S. economy could be adversely affected by trade disputes. 

“While 2018 had been a been a great year for the plate market, it peaked toward the end of the year,” says Steve Koch, senior vice president for Reliance Steel & Aluminum Co., Los Angeles. Since then, the market has been sliding, largely due to the recent pricing battle, he says.

Michael Young, president and COO of Rochester, N.Y.-based Klein Steel Service, has a similar impression. “While I’m not predicting a rapid decline in either price or demand, I think the trendline could be pointed downhill for the balance of the year.” 

Even though it feels as if the plate market has been struggling for most of 2019, Becky E. Hites, president of Steel-Insights LLC, says plate production volumes haven’t been that poor. In fact, she expects shipments to be even higher this year that they were in the healthy 2018. 

In fact, Christopher Plummer, managing director of Metal Strategies Inc., estimates that overall plate shipments will increase 2.3 percent this year to 9.4 million tons, following an 8.1 percent increase in 2018. That covers a 9.3 percent increase in plate mill plate, including cut-to-length coil, and a 13.5 percent decline in coiled plate. He is forecasting that next year overall plate shipments will increase very slightly – about 0.2 percent, including a 2.1 percent increase for PMP and a 5.1 percent decline in CMP. 

In the assessment of ArcelorMittal’s Amy Ebben, the plate market started very strong this year, with apparent consumption of carbon and alloy steel PMP up 15 percent compared with the first four months of 2018. 

As the year has progressed, there has been “a bit of normalization” in the market, says Tyler Kenyon, metals and mining research analyst for Cowen & Co. That’s been prompted by several factors, including downward revisions in second-half demand by some end users, particularly in the industrial and energy markets. 

Meanwhile there has also been some destocking going on with both service centers and OEMs looking to lean out their inventories. “That has particularly been the case in the last few months when plate priced started to fall quite aggressively,” Kenyon says. 

Koch agrees, observing that early in the year service center plate inventories were fairly well balanced. “Once plate prices started to fall it made companies very cautious, very quickly,” he says. That prompted them to move as much metal as they could, concerned about the impact that high-priced inventories would have on their margins. “We will continue to manage our inventories to the best of our ability, because that is the once thing that we can control despite the ups and downs of the plate market.”

Nevertheless, Plummer forecasts apparent consumption for PMP – which is clearly the highest volume of plate products – will see a 13.2 percent rise for the year as a whole, following the 5.6 percent increase in 2018. He believes it will continue to increase in 2020, albeit a much more moderate 3.2 percent clip. 

John Anton, associate director of IHS Markit’s pricing and purchasing service, is not optimistic about the near future for plate products. “It will be a weaker story going forward.”

Steel-Insights’ Hites isn’t surprised the plate market has outperformed other steel products, most notably flat-rolled, given it is a “late in stage” participant in the economic cycle and tends to lag the hot-rolled band market by about six months. In fact, she says in the short cycles the industry has seen in recent years, plate is almost a counter-cyclical performer to sheet. 

Consistent with this, at least to date, plate’s price declines have not been nearly as steep as those for sheet. Plummer says sheet products were down 42 percent from their July 18 peak. By comparison PMP prices peaked at $989 per short ton in and as of early July had only come down by 24 percent to $750 per ton. 

Of course, the lagging effect could remain in place here. Sheet prices have possibly stabilized and could start to move back up on the back of two $40 per ton price hikes. On the other hand, Anton believes there’s considerable risk plate prices will decline further before bottoming out at the end of the year, possibly as low as $600 to $650 per ton. Once reached, however, the prices will move up again, particularly if service center inventories have become so thin that replenishment becomes a need, he says. 

Some other industry observers, however, are not so sure that will happen. Kenyon expects 2020 plate prices will be lower than those realized in both 2018 and 2019. 

To date, the underlying plate demand is said to be quite healthy, Plummer says. Most of its major end use markets, including public works construction, industrial equipment, energy and rail cars, can be described as steady or at least modestly improving. But it hasn’t yet reached the market’s most recent peak in 2014, says Ebben, who serves as ArcelorMittal USA’s divisional manager of strategic marketing.

“Despite some mixed signals, including growing skittishness about trade tensions, the U.S. economy is still doing moderately, even surprisingly, well,” Plummer says. 

Anton is becoming increasingly concerned about how long demand in the U.S. plate market will hold up. Young express a similar concern, observing that with some recent uncertainties in the market, many of Klein Steel’s large customers have been less willing to buy forward. “In fact, some of them are buying as late as possible, especially given that recently prices have been often changing daily.”

“The United States isn’t an island, and globally other economies aren’t as strong as the U.S. economy,” he says, noting that about 40 percent of U.S.-produced heavy equipment is exported. “So, it is getting harder for U.S. manufacturers to get other countries to buy their yellow and green goods.” Also, while U.S. demand for construction equipment is said to be fairly steady, domestic mining equipment has been adversely affected by softness in the coal market. 

Those fears have yet to play out in the market, says Bill Hickey, president of Lapham-Hickey Steel Corp., Chicago. He says the number of oil and natural gas pipelines and public works projects under construction have kept demand at solid levels. 

Plummer says plate and other steel demand for bridge spans and other public works construction should continue to grow, even with the long-awaited federal infrastructure spending plan still on hold and the persistent concerns of an impending downturn given this has already been the longest economic expansion in modern history. But public works construction tends to be a late-cycle performer, so he is forecasting infrastructure construction activity to be up 11.7 percent this year and another 6.7 percent in 2020. 

Others aren’t so optimistic. Hites says that while bridge replacements are continuing, backlogs have fallen to just three months due to a gap in new projects last fall, when companies were waiting on a new federal package. Unfortunately, despite bipartisan support, that effort has stalled amid questions about how to pay for it at a time when the federal deficit has been burgeoning and the federal highway trust fund has been declining. 

Where the federal government has failed, many states have stepped in, raising taxes on gasoline to aid their infrastructure needs. On top of that, in mid-July, President Trump signed an executive order designed to increase the amount of American steel used in infrastructure projects. 

Additionally, plate demand for energy transmission pipelines for liquefied natural gas export facilities has been strong, according to ArcelorMittal’s Ebben. The demanding requirements for these applications are well suited for plate, she adds. 

Even with some protests by environmental groups slowing certain projects, most notably the Keystone XL pipeline, Plummer notes domestic line pipe shipments were up 41.2 percent year to date. And there’s potential for a bigger boom if all the proposed pipelines are indeed built. 

Hickey says that is welcome, noting current pipeline capacity is not sufficient to transport the crude oil and natural gas currently being drilled at the various U.S. shale plays. Additional pipelines are required to transport natural gas to the recently opened and under-construction LNG export facilities, as well as docking systems at those facilities and for ships to transport the LNG abroad. 

A record number of wind turbine projects continue to be built, both onshore and offshore, Hites observes. While there were some concerns that could slow with tax credits rolling off this year, it is now expected those credits will be renewed. Also, Anton notes, the cost to produce wind energy has been coming down, further aiding the market. 

Reliance’s Koch notes there is growing demand for storage tanks to hold oil and natural gas until it can be transported, either via pipelines or rail tank cars. While the tank car business was fairly active a few years ago for the transportation of crude oil, it has turned down a little bit recently.  Plummer says the rate of growth for total railcar deliveries has been slowing slightly, from 3.8 percent last year to about 3.3 percent this year and 2.7 percent in 2020. 

At the same time, Koch notes plate supply is plentiful, marked by extremely short domestic mill lead times – on average only three to four weeks – with the ability to get metal even shorter than that if required. This is a big change from a year ago, when most mills were on controlled order entry. 

Despite this, new plate production capacity is expected to come online over the next several years, although much less than is expected for steel sheet and long products. This includes a 1.2-million ton greenfield mill being built by Nucor Corp. in Brandenburg, Ky., that is expected to be fully operational in 2022. The steelmaker says the new mill, which will produce 60- to 160-inch wide cut-to-length, coiled, heat-treated and discrete plate, will enable it to produce 97 percent of the products that plate customers require, including high-margin items. 

In addition, Plummer notes, JSW Steel USA plans to ramp up production capacity at its almost-new Baytown, Texas, mill by replacing the plate mill there with an enhanced line, also in the 2021 to 2022 timeframe. 

Other than ArcelorMittal idling plate rolling at Conshohocken, Pa., last year, taking 500,000 tons out of the market, there haven’t been any major plate closures. The big question is what the impact will be once this new production capacity will come online, whether it will displace imports or existing, higher-cost domestic capacity. For example, Charles Bradford, president and metals analyst for Bradford Research, says the new Nucor mill could put competitive pressure upon ArcelorMittal’s Burns Harbor, Ind., and Coatesville, Pa., plate mills. 

Actually, imports are not as much of a factor for the plate market as for many other steel products, given the protection it has enjoyed by several antidumping and countervailing duty cases. Cowen’s Kenyon says in addition to the preliminary duties imposed in July on cut-to-length plate imports from Belgium, France, Italy and South Korea on top of those imposed in 2017 against those countries plus Austria, Germany, Japan and Taiwan, coil plate was included in the 2015 hot-rolled sheet case against imports from Australia, Brazil, Japan, Korea, the Netherlands, Turkey and the United Kingdom. Also, fabricated plate is included in the still-pending fabricated structural steel case against imports from Canada, China and Mexico. 

While last year some companies did bring in some plate imports – even after the Section 232 – because of the tight domestic steel availability, it is a different story now. “Recently, we haven’t seen many import offers,” Reliance’s Koch says, adding the few that he has seen, largely from South Korea, were higher than domestic prices. 

Young says while some plate has started to flow in from Canada and Mexico since the Section 232 tariffs were lifted from those countries, they haven’t done so at a disruptive pricing level.

While the second half is expected to be somewhat challenging for the plate market, Kenyon hopes once plate inventories correct and both scrap and plate prices bottom out, the plate market could stabilize either late this year or into 2020. “But right now, there is quite a bit of pain being felt in the plate supply chain.”

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