The steel plate market was on the rise in the first half of 2018, and improved demand has experts and analysts expecting similar growth at least through the end of the year. With the outlook for key end markets similarly positive, steady demand is helping to ease some concerns over soaring prices and trade uncertainty.
Coming off of a strong year in 2017, the plate market has continued on its upward trend. Many service centers are reporting growth in their plate business so far this year, driven primarily by high demand in certain key end markets.
Klein Steel Service, Rochester, N.Y., has seen its plate business grow in both of the last two years, according to President and COO Michael Young. “In 2017, the plate market was pretty good for us, and it’s been very solid in 2018,” he says. “Generally speaking, demand is very good for us right now. Overall, I would characterize the market for us and our customer base as very healthy.”
Chicago-based metals distributor Ryerson has seen an uptick in orders for carbon plate as well. Rudi Tanck, market manager for heavy equipment customers at Ryerson, says the market has been strong so far. "As a whole, the economy improved and along with that the demand for carbon plate improved," he says. "I have seen steady demand for carbon plate so far, and I don't anticipate that will change in the near future."
Steelmakers appear to be similarly optimistic about the market. “The plate market for 2018 has shown improved demand from most all key end-use segments,” says Jeff Moskaluk, senior vice president and chief commercial officer at SSAB Americas, Chicago.
Despite a slight dip in plate shipments so far this year, Charlotte, N.C.-based steelmaker Nucor is also liking what it’s seeing in the plate market. Nucor President and CEO John Ferriola told investors recently that the volume losses experienced during the second quarter were due to operational issues at the company’s mills in Hertford, N.C., and Tuscaloosa, Ala. “Our plate business in the second quarter was very strong, frankly second only to our sheet business,” he said, adding that the operational issues at Hertford and Tuscaloosa have been addressed.
According to John Tumazos, senior metals analyst and owner of Very Independent Research, the domestic plate market is almost as good as it gets for steel manufacturers. He says plate mills are benefiting from a drop in imports resulting from the Section 232 steel tariff, as well as high-performing end markets. The energy market in particular is one which has fueled plate demand, according to Tumazos.
In the oil and gas market, steel plate is used in a number of applications, including pipelines, storage tanks, drill platforms and refineries. Tumazos says deregulation of the oil and gas industry by the Trump administration is spurring additional investment within the sector, thus increasing demand for plate.
“I think energy is probably the most resurgent market prospectively in 2018 and 2019,” Tumazos says. “There’s a reasonable chance the [plate] market expands 10 percent two consecutive years just on the back of energy.”
Within the energy market, the production of wind towers is another plate-intensive sector. According to the American Wind Energy Association, seven new wind farms came online across seven states in the first quarter of 2018. Project developers have also reported that wind capacity under construction or in advanced development as of the end of the first quarter is up 40 percent year over year.
“Wind towers are still very strong,” says Young. “There’s a lot of plate in wind towers, and that business is still very strong. We have a customer in that marketplace, and they’re very busy.”
Increased equipment orders have also helped extend demand, as heavy equipment is another key end market for carbon plate. Dave Lerman, CEO at Steel Warehouse Co., South Bend, Ind., says more companies are investing in new equipment thanks to the Tax Cuts and Jobs Act, which Congress passed in December.
“I think that the tax bill helped a lot,” he says. “The legislation that allows quick depreciation has encouraged people on the capex side to buy equipment, whether it’s construction equipment or manufacturing equipment.”
During Reliance Steel & Aluminum’s second quarter earnings call, COO James Hoffman told investors that demand in the heavy industry sector continues to strengthen. Similarly, he thinks the recent tax legislation has affected the market positively.
“Spending on both construction and agriculture equipment increased, which we believe has been supported by tax reform as our customers respond to heightened demand for their clients who have increased their capital spending budgets,” he said. “As a result, we maintain our positive outlook that demand in heavy industry will continue to improve.”
Another fundamental market for plate is the construction industry. Here too, distributors are seeing growth. Young says construction is Klein Steel’s largest market for plate, which has helped drive sales. “Over the last two years, we’ve seen steady improvement, and most of our business goes to construction,” he says. “Construction has improved every year since 2009, and it keeps getting a little better.”
Total construction spending has increased 4.5 percent over May 2017, according to the U.S. Census Bureau, with both nonresidential and public works showing year-over-year increases. Highway and street building, which includes the plate-heavy bridge construction sector, is up 5.8 percent through May.
“Construction starts and all of that have been relatively strong for the last year,” Tanck says. “Construction kind of picked up momentum through last year with the economy.”
The other factor boosting the domestic plate market, according to Tumazos, is the cutoff of foreign imports. Although Census data show imports of cut-length plate and coiled plate are up year to date through May, preliminary import numbers from June suggest the Section 232 tariffs are having their intended effect. Imports of cut-length plate were down 56.8 percent from last June, while coiled plate imports dropped 29.4 percent.
“In general, 232 should be reducing import competition in both categories,” Tumazos says, adding that strict enforcement of the steel tariff could result in a 1- to 3-million-ton pickup in volume in the domestic plate market. “I think that the different plate mills should be feeling pretty good.”
Lerman agrees. “Because of the cutoff of imported plate by tariffs, the domestic plate mills are very strong, and they’ve ridden the strength of the market and the tariffs up the price ladder.”
Section 232, combined with steady demand, has had a noticeable impact on price as well. The cost of standard plate is up more than $200 per metric ton since January, according to SteelBenchmarker. As of July 23, the price for standard plate is $1,078 per metric ton.
Tumazos says this alone presents a number of potential issues for service centers. “The distributor has the problem of financing his inventory in a rising market and taking a loss in a falling market,” he says. “If I were a distributor, I wouldn’t be able to sleep at night because you’re holding all this high price inventory and saying a prayer that you sell it fast.”
Managing inventory is always a concern for service centers, but distributors acknowledge the need for quick turnover in this high-priced environment. A business that is more transactional may be in a better position to mitigate losses, if and when the price of plate softens, according to Young.
“It’s stressful because any day we could come in to find out our inventory has been devalued,” he says. “What we’re proud of is that we manage the turn rate on our inventory very closely. So when things change, our pain threshold will be as low as the best competitors in the marketplace.”
Despite the high demand, domestic plate lead times are not too extended, according to Tanck. But that’s not to say service centers should let their guards down. Careful management of supply chains is still a priority.
“Whenever you get a market that picks up, there are challenges that come with it,” Tanck says. “With our supply chain that we have and with the forecasts that we’re able to get from our large customers, we’re able to service the demands that we’re seeing from our customers. The diversity of our supply chain has enabled us to kind of work through this.”
According to Hoffman, lead times have been extended as a result of the strong demand environment and ongoing Section 232 activity. Depending on the mill, Young places lead times somewhere between six and 12 weeks.
Moskaluk says SSAB America’s lead times are rather strong and currently run through the end of September. And despite a planned fourth-quarter maintenance outage at its mill in Montpelier, Iowa, the company doesn’t anticipate any supply disruptions to its customers. “We work with our customers directly to manage order loading for a planned outage,” Moskaluk says. “We utilize the combined capacity of all five of our facilities to manage customer demand.”
Overall, the plate market is expected to stay strong through 2018 and into 2019. Based on the energy market, Tumazos doesn’t expect plate demand to fall off any time soon. “A lot of these things are long lag functions; it doesn’t snap back in a year,” he says. “It would develop over two or three years. It wouldn’t just stop on a dime.”
For Lerman, the continued strength of the plate market comes down to the tariffs and how the mills handle them. “If the mills keep raising prices, at some point the price will get to where some exporter from another part of the world can ship plate here, pay the tariffs and still be OK. That would be a tipping point for sure.”