Stepping Up To the Plate
By Myra Pinkham | Contributing Editor
on Aug 23, 2023
The plate market has outpaced most other carbon steel markets in 2023. Supply chain participants hope federal spending keeps it humming along.
The U.S. plate market has been very resilient, both from a demand and pricing perspective, and is expected to remain so even amid uncertainty about the strength of the domestic economy.
In fact, it has been much more resilient than virtually any other U.S. carbon steel market, and much stronger than had been anticipated. Philip Gibbs, a senior metals equity analyst with KeyBanc Capital Markets, says that was at least partly attributable to supply discipline from domestic plate producers and a lack of desire for distributors and manufacturers to overstock their inventories at current pricing levels. Also, Don Hunter, senior vice president of EVRAZ North America’s Portland operations, points out that because of the shortage of available workers, it is difficult for steelmakers to increase their capacity utilization.
Those prices, however, have been somewhat of a head scratcher, says Rich Manson, Olympic Steel’s CFO. Through the end of June, the spread between hot-rolled sheet and hot-rolled plate exceeded $600 per ton, well above the historical norm of $150 to $200. Hunter notes that U.S. plate prices are remaining high even though domestic demand, while “decent,” isn’t “awesome.”
Plate prices tend to trend similarly with sheet, but that has not been the case over the past year or so, says John Anton, director of S&P Global Market Intelligence’s steel pricing and purchasing. He notes that U.S. carbon steel sheet prices have been on a roller coaster ride, first plummeting early in 2022, falling about $600 per ton in just a month, before jumping up again to about $1,200 per ton when Russia invaded Ukraine. But it has been falling steeply since then, with some indices putting it at about $870 per ton as of late June. Anton believes it will likely fall slightly further, at least.
While U.S. plate prices have also eased recently, falling to about $1,500 per ton at the end of June, Anton notes that they have, and will likely continue to, decline much slower than sheet and other steel products. “Not only are some plate markets somewhat stronger than some sheet markets, the mills have largely put a hammerlock on existing production to help them maintain their current price.”
In fact, even though Nucor is in the process of ramping up its 1.2-million-ton Brandenburg, Ky., greenfield plate mill, as well as some more modest U.S. plate mill investments, that won’t result in a plate surplus, Anton says. That perspective is bolstered by Nucor’s recent announcement it will cease production at its 100,000-ton-a-year Longview, Texas, plate mill sometime in the third quarter.
During its first-quarter earnings call in April, Nucor said the Brandenburg ramp up was going well and the new plate mill, which the company called a “gamechanger” with its capability to produce heavy duty plate, is expected to produce up to 500,000 tons of steel this year.
While JSW Steel USA has “greenlit” investment projects at both its Mingo Junction, Ohio, and Baytown, Texas, facilities, Cory Raimondi, the company’s CCO, notes they won’t be completed and commissioned until its 2026 fiscal year. While JSW plans to increase its Baytown production capacity by 30 percent, Raimondi points out the project at Mingo Junction, which supplies slabs to Baytown, will not change its capacity, but rather will upgrade the grade of steel that it produces.
Those investments are driven in part by JSW’s desire to meet the Made in America requirements in certain recently passed legislation – such as the Infrastructure Investment & Jobs Act and the Inflation Reduction Act – for wind power and infrastructure projects.
While at the moment the U.S. plate market is largely in balance – more balanced than it has been over the past six months or so – Ryan McKinley, a senior CRU steel analyst, says he wouldn’t be surprised if more plate capacity is added. That could be in the form of another mill or, more likely, expansions of existing facilities.
Anton agrees. “I have believed for a while that the U.S. has needed one or two more plate mills. That should still be welcomed into the market given that there are no expectations that it will create an untenable surplus.”
This is particularly the case given how strong U.S. plate demand has been and is expected to continue to be.
Kevin Dempsey, president and CEO of the American Iron and Steel Institute, notes that U.S. apparent plate demand grew 7 percent in 2021 and 3 percent in 2022. This year through April it was up another 4.5 percent on the back of a 4.8 percent increase in domestic shipments, coming at the same time as imported plate tonnage declined by 8.5 percent.
“We expect continued growth in demand for steel plate driven by new investments enabled by the passage of several pieces of legislation in Congress and initiatives by the administration,” Dempsey says, adding, that American steel – including plate – is at the core of the bipartisan plan to build our critical infrastructure, including roads and bridges, locks and dams, drinking water systems, the nation’s electrical grid and clean energy projects.
“Over the short and the more medium term we are looking at bullish plate demand,” CRU’s McKinley says. He adds that all of the major plate sectors – the largest of which are generally considered to be construction, energy and equipment-related – are all still strong. However, there is potential for some easing during the second half, coming at the same time as Nucor Brandenburg is ramping up. Also, while it will likely to be booming by 2025, Hunter agrees it could struggle somewhat for the rest of this year until more of the funding from the IRA and the IIJA kicks in.
Not only are some IIJA funds already trickling in, KeyBanc’s Gibbs says there has already been a good amount of bridge construction and repair activity using pre-infrastructure bill funds. That includes a recent allocation by the Biden administration of a few billion dollars for targeted bridgework.
Nucor’s Topalian noted AISI estimates there are about five million tons of steel (total steel, not just steel plate) for every $100 billion in infrastructure spending.
Moreover, there have been significant advances in the plate used in bridge construction. EVRAZ’s Hunter says that such higher strength, lighter weight plate, has enabled a doubling of the lifespan of bridges from those built about 70 years ago.
“Such plate is also advantageous for other applications,” Hunter says, including for armor protection for defense vehicles. “It allows those vehicles to burn less fuel without affecting its protective properties.”
In addition to its use in construction projects, plate demand is strong for heavy equipment – not just construction, but also mining equipment. However, Olympic Steel’s Manson notes that while the major heavy equipment manufacturers have been very busy, they continue to be affected by labor issues.
While it’s too early to know exactly what its impact will be, with some of its provisions yet to be clarified, the IRA and its focus upon the energy sector, particularly green energy, will be positive for plate, JSW’s Raimondi says. This is particularly true for wind and solar power generation, as well as the infrastructure needed to transport that energy. “Also, we have seen a big push in liquified natural gas projects and some increased activity in the transportation and storage in the oil and natural gas sector,” he observed.
McKinley says some early orders motivated by the IRA are starting to come in, although most of the projects are still in planning phases and much of the impact won’t be felt until next year at the earliest.
Still, demand for plate for the generation of wind power and other renewable energy sources is expected to double over the next two years, becoming a significant portion of the market, Hunter says.
To date, much of the wind-power-related demand has been for onshore wind towers, which, according to Ryan Murphy, vice president of purchasing for Leeco Steel, contain about 180 to 200 tons. In contrast, offshore wind towers could contain up to 2,000 tons of steel per tower. That, according to John Begala, vice president for state and financial policy for the Business Network for Offshore Wind, is because offshore wind towers require very heavy duty plate – 90 to 100 millimeters thick. While Nucor Brandenburg will be able to produce up to 100-millimeter-thick plate, it will be difficult to get thicker plate given that only seven mills worldwide are able to produce 120- to 150-millimeter-thick plate and the Buy America rules in the IRA could limit the use of imported plate, he says.
“I believe that the ability of U.S. mills to produce those heavier gauge products will continue to evolve,” JSW’s Raimondi says. “I think that as we upgrade our facilities, we will be about to support the offshore wind market according to the IRA requirements.
Begala notes that at this time there are only two operational offshore wind projects in the U.S., although two more projects will begin construction this year – one off the coast of Long Island and another off the coast of Massachusetts. There is expected to be “a big explosion” of offshore wind projects coming from 2025 to 27, assuming companies can get the plate they need. It could also be impacted by other supply chain issues, such as the ability to get the needed generators, S&P Global’s Anton observes.
The CHIPS & Science Act will also keep the plate market busy over the next two years, Murphy says, given its impact upon the number of new semiconductor chip facilities being built in the U.S.
Topalian noted there are already more than 30 semiconductor plants or expansions in response to that legislation. Those projects, however, are also largely in planning stages at this time.
“I expect to see modest plate demand in the second half of this year despite the influx of federal investment,” says Miriam Falk, a senior steel analyst for Fastmarkets. Her expectations are driven by concerns the Federal Reserve could raise interest rates further, which could potentially dampen construction and manufacturing activity. But Hunter questions if that would be the case unless the U.S. economy really crashes. “Rather it will force some companies to be even more responsible about their inventories,” even though they are already managing their stocks well.
In fact, CRU’s McKinley says service center plate inventories are now fairly balanced with demand, which is quite a difference from early this year when they were in a steep deficit. KeyBanc’s Gibbs says that even with inventories somewhat lean, at about 2.3 months of supply on hand as of May, whether demand gets better or worse, distributors won’t buy any more than they need to meet their customers’ demand.
S&P Global’s Anton says that makes a lot of sense given the potential for U.S. plate price – which is much higher than elsewhere in the world – to move down further. They will do so much more gradually than sheet, which spiked and then crashed, as of early July. U.S. Plate prices have already come down to about $1,500 per ton from a mid-2022 peak of about $2,000 per ton.
“While on a downslope, I don’t see plate prices falling off the edge,” Anton says, but rather eventually bottoming out at just under $1,000 per ton.
Despite the downward pressure upon U.S. plate prices, Fastmarkets’ Falk says the spread between hot-roll and plate remains wide and due to the relative stability of plate prices, declining HRC prices, limited competition and high demand for plate. Also, she notes that there are limited substitutes that can fulfill the same functions as plate.
Also, Leeco’s Murphy believes that, given what is on the horizon for 2024 to 2028, the domestic plate market will likely have a pretty good run ahead of it, stating, “While there are some things that could derail it, at least temporarily, including the potential for a recession, right now I feel good about the plate market for the next three to five years.”
Federal spending will likely help keep the plate supply chain busy. (Photo courtesy Leeco Steel)