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Scrambling for Plate

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MCN Editor Beth Gainer Factors such as the pandemic, long lead times, high prices and credit woes have left industry  professionals reeling in their search for steel plate.

Although the pandemic has receded somewhat, it has left a lack of steel plate supply in its wake. The plate market is being driven by four major end market applications – machinery and equipment, construction, transportation, and the oil and gas sector, primarily line pipe, according to Christopher Plummer, Group CEO, Metal Strategies Inc., West Chester, Pa.

Facilities came online beginning in the early third quarter of 2020, but steel producers have been unable to keep up “partly because some capacity was idled, taken offline, or, in the case of sheet steel, which impacts coil plate, a couple of mills were permanently removed from the market,” he says.

Plummer predicts that even with high operating rates, producers are still not going to meet the high demand for steel plate, causing the shortage to continue into mid-year 2022.  Balance won’t be reached until most of the new proposed capacity is online.

Industry professionals are clamoring for plate, but today’s market supply cannot keep up with the demand. “Material has definitely been tight. It has not been a year where you buy everything that you want; there’s no additional production capacity that’s coming online for plate,” says Ryan Murphy, vice president of purchasing at Leeco Steel, a plate distribution warehouse headquartered in Lisle, Ill. He also predicts this situation to extend into the rest of the year, possibly even into Q1 of 2022.

Some producers that typically make plate are focusing on the hot-roll coil market instead because the latter yields a greater return on investment. However, if these producers catch up with hot-roll, Murphy says, the steel plate supply might open up even before Nucor’s new plate mill in Brandenburg, Ky., comes online.

Scheduled to begin operating in 2022, the Nucor Brandenburg facility “is located right smack in the middle of the biggest plate market,” says Plummer, “and that plant at 1.2 million tons can make 97 percent of all of the plate consumed in North America by width, thickness and length.”

Yet, he issues a caveat: “Nucor Brandenburg is going to have to take away market share from somebody.”

However, Brent Wilson believes this new facility is just what the industry needs, as Brandenburg will introduce healthy competition. Wilson is the marketing manager for PGI Steel, Birmingham, Ala., a  family-owned business celebrating its 50th anniversary. Its niche is in heavier plate thickness items for heavier weldments and fabrications and large-capacity machining.

“There’s a huge demand for heavy plate across our entire country,” Wilson says. “Having Brandenburg come line will only help support that market more and give other people the ability to compete, and hopefully the people who are buying the plate will get more attractive pricing deals because of that competition.”

The mill coming online happens to time well with the Biden administration’s infrastructure plan, which, many industry professionals agree, will bolster the steel plate industry. The plan “will greatly and positively affect the steel plate market,” says Plummer. Murphy believes, “If the [infrastructure bill] gets pushed through, that could spur some additional demand here in the U.S. and for plate providers specifically.”

Damian Brennan, vice president of Clarington, Ohio-based American Heavy Plates, believes the infrastructure plan is necessary. Beginning its operations in January 2020, the business serves customers who range from small shops to large OEMs.

“You have enough people across the country who realize that between collapsing bridges, apartment towers, poor water systems, outdated dams and all the problems that we had that there’s got to be this big investment,” he says. “The infrastructure we live off today was built and paid for by previous generations. And we’ve gotten a little lazy; we’ve gotten a little complacent.” He believes that passing the infrastructure bill will increase demand for steel plate by 20 percent over a five to eight-year period.

However, Brennan acknowledges that infrastructure projects are only the tip of the iceberg. Other important applications are on the horizon. “When you look at wind towers, you’re looking at an annual demand of a couple of hundred thousand tons for years as we build out these projects,” he says. “You’re looking at the U.S. Navy starting a multiyear update on the submarine fleet, you’ve got five billion new homes that need to be built, and all of these are going to add hundreds of thousands of tons of steel plate demand for the next several years.”

No doubt, the demand for plate today and into the future outweighs the supply, and this adversely affects lead times.

Waiting
“What we have here is a national, if not worldwide, supply chain issue. Everybody’s waiting,” says Patrick Dickerson, business development manager for TF Warren Group, which owns Premium Plate in Axis, Ala. The company does plate processing and fabrication and serves many markets, including oil and gas and power generation.

The ever-changing price of the material compounds the issue.

“A lot of the domestic mills are out until August and September,” he says. “We’ve got some great customers in construction, and what we’re finding is that in a lot of cases, they’ve quoted out jobs based on pricing from a year ago, and they’re in a tough position right now with pricing being so high.”

Dickerson indicates the lead times are plate-type specific. “If you want really thick plates coming out of an ingot, those lead times are way out there, three to three and a half months,” he says. “If you need something coming out of a continuous cast plate, you’re about eight weeks out. Also, some of the mills are running a few weeks late because they’re full and when they get to that production level, they’re not as efficient; there’s no time to take a breath.”

In fact, long lead times, high steel prices and too much inventory create the perfect storm of challenges for the steel plate industry.

“The price of steel has skyrocketed,” says Dickerson. Wilson agrees, saying plate prices are astronomical, with no relief in sight at this time.  “We continually get increases and announcements from mills that prices continue to go up,” he says, adding that the company does not want to hold plenty of high-priced inventory.

“There is a supply constraint throughout the system and that has led to an explosion in pricing to literally all-time record levels,” agrees Plummer. “We’ve got plate mill plate up to almost $1,400 a ton on the spot market.” He adds that the Brandenburg facility will greatly help correct the pricing.

Sometimes, getting one’s hands on material comes down to that company having a solid relationship with the mills. “Most mills have reserved volumes for specific customers,” says Murphy. One such customer is Premium Plate. Dickerson says his business has had strong relationships with the mills. “The mills are supporting their existing accounts that were with them before the pandemic, so if you were a new customer, or if you are starting up a new steel business, and you weren’t buying from the mills before, you’d have a hard time getting steel right now,” he explains. “We have been very fortunate and we’ve done a very good job of cultivating our mill relationships.”

Availability, Inventory, Credit
The availability of material is unpredictable and a challenge. “Steel mills in the U.S. are doing very well in terms of their plate business. They’re pretty much selling everything they can make,” says Plummer. However, he adds that companies depending on slabs “have had some constraints in their activity.”

Such is the case for American Heavy Plates, which relies partly on slabs to create plate. The company has found getting some of its material from U.S. mills challenging. The business manufactures plate from ingots and slabs. While the company is able to purchase all of its ingots within the U.S., it has had to look elsewhere for slabs. “Suppliers just couldn’t or wouldn’t produce the slabs for us,” says Brennan. “So we had to turn in modest quantities for import because there was no one in the U.S. that would sell us what we needed.”

For those who cannot get their hands on material in the U.S., importing might be the only solution. In fact, according to Plummer, about two-thirds of plate imports are coming from Canada and South Korea combined.

Holding excess inventory even further burdens businesses. “Right now, we don’t want to go and place a large tonnage committal with the mill because we run the risk of the market changing, and then we’re left with high-price inventory,” says Wilson. “And we don’t want to suck up too much of a loss so we’re trying to avoid placing any large mill orders because with the lead time and the price today, by the time the steel is cooled down and ready to ship to us in, say, eight to 10 weeks or whatever the current lead time is, depending on the location and mill, the price could very well have changed.”

During those times when distributors are worried about getting caught with high-priced stock, American Heavy Plates is able to help its customers avoid inventory risk by using a just-in-time approach. “Our customers can meet their end customers’ demand, they have less money tied up in inventory, they turn the inventory really quickly, so that’s really good for cash flow,” says Brennan.

The company also allows customers flexibility so they can head off potential credit problems. “We can make more efficient use of [customers’] capital, so instead of having to buy a plate for $30,000, they could buy half a plate for $15,000 or just the amount of steel they need for $5,000, and they don’t have to lock up the money in inventory,” says Brennan. “We’re seeing a lot of the companies who are taking tentative growth steps turn to us because we’ve got more flexibility than a big producer focused on large production runs.”

And Brennan predicts the future holds a sea change for manufacturing. “American manufacturing probably is going to look a lot more like mass customization than mass production,” he says.

The rise in steel prices has also left many industry professionals with credit issues. “Right now I think everybody – whatever steel product they’re in – everybody is having some challenges with credit,” says Murphy, “whether that’s with their own suppliers or with their customers because you have steel prices that basically double or triple over a six- to nine-month time span. Whatever you were buying before – if you’re buying the same amount of volume, you’re just paying two or three times for it. I think credit limits are getting stretched everywhere.”

Dickerson agrees the sky-high prices of steel are causing credit concerns for businesses. “Your credit line is cut in half because prices have doubled,” he says, adding that while his company does not have credit problems, others can’t afford the amount of steel for projects.

Brennan agrees that credit is a problem for many companies, thanks to steel’s expense. “Every shipment of steel is now twice as expensive as it was a few months ago, and it’s probably going even higher,” he explains, “so where you used to get credit lines of $100,000, today that’s hardly enough steel to get through a couple of days.”

The steel plate industry has many challenges ahead, including the uncertainty that accompanies the cost of doing business. Despite this, Nucor’s Brandenburg facility and future infrastructure projects offer hope.

Caption:
American Heavy Plates serves customers who range from small grind shops to large OEMs.
(Photo courtesy American Heavy Plates)