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Following a few years of allocation, lead times have come in dramatically for specialty bar quality products. 

Lead times for U.S. special bar quality products have come in considerably over the past year, though that isn’t necessarily an indication of an extreme decline in underlying SBQ demand. Rather, it’s a combination of companies working down their inventories at the same time demand softened moderately in certain end-use markets, allowing mills to catch up. 

“Overall SBQ demand is on a path of consolidation,” but not severely so, according to Philip Gibbs, a senior metals equity analyst for KeyBanc Capital Markets. He notes that most end-use markets have been cooling somewhat and overall underlying SBQ demand is just down a few percentage points year on year. He attributes the current weakness to the amount of restocking that had occurred in 2021 and 2022.

“Lead times have virtually collapsed from where they were over the last year or so when SBQ producers were on allocation and were late on their deliveries,” says Jeff Hoerr, Alton Steel’s manager of sales and quality. He says his company’s SBQ backlogs had been out about six months in 2021 and 2022.

That, according to Jack Barger, president of Central Steel & Wire, is because of the amount of pent-up SBQ demand coming out of the COVID-19 pandemic. Scott Stephens, Kreher Steel’s CEO says that resulted in some “fictitious” orders with companies double- or triple-ordering as part of a resultant supply chain disruption-induced buying frenzy. 

“Domestic mills have recently done a good job catching up with their orders,” according to Brent Pepich, Central Steel & Wire’s carbon long products manager, who pointed out that lead times for as-rolled SBQ products are currently only four to eight weeks compared with 10 to 12 weeks earlier this year. Similarly, lead times for thermally treated products have shrunk to 10 to 14 weeks from about 20 to 28 weeks. At the same time, he notes that mills are starting to ease some of the controlled order-entry constraints they had imposed last year. 

Many mills see these shorter lead times as a good thing. For example, Darren Wojahn, marketing manager for Charter Steel, says the current lead times are in his desired window, allowing his company to best service and meet the needs of its customers. 

These shorter lead times have occurred even with Mexico-based Grupo Simec idling the steelmaking operations at its Republic Steel mill in Canton, Ohio, in August. That had been the only domestic mill to produce leaded hot-rolled SBQ.

Gibbs says this follows Simec’s recent investment in a state-of-the-art mill in Tlaxcala, Mexico, with the Canton mill running at a loss and Republic’s other U.S. mills under pressure from the Environmental Protection Agency to not produce leaded SBQ domestically. He notes that Republic plans to continue to operate its cold-finished bar operations. “Republic will continue to ship cold-finished products to its customers. All that is changing is that its hot-rolled bar substrate will no longer be produced in Ohio, but rather from Mexico,” Gibbs says. “So, theoretically their cold-finished bar customers won’t notice any difference.”

This follows several other recent reductions in U.S. SBQ production capacity, which, according to Hoerr, has declined by about 20 percent over the past five to seven years, including moves by TimkenSteel, Gerdau, Hamilton Specialty Bar and ArcelorMittal. For example, he says, TimkenSteel is currently producing about half the amount of SBQ as the company once did since it shut down its Harrison facility in Ohio in 2021. The decline is even with the new straight bar production capacity that Charter Steel recently added in Cuyahoga Heights, Ohio, which, while starting to ship SBQ in mid-June, has reportedly been ramping up slowly. 

There’s uncertainty about future demand, especially given concerns the U.S. economy could be slowing as a result of the numerous interest rate hikes, even if the Federal Reserve has put a pause on future ones. 

Both service centers and OEMs have been cautious about their purchases and are likely to continue to take moves to keep their SBQ purchases in line with demand. 

For much of this year, services centers have been working down their SBQ inventories, Stephens says. Though his company’s shipments were only down about 15 percent through September. Kreher Steel managed to work down its inventories about 30 percent. “But given that at current shipping rates service center SBQ inventories are in pretty decent shape, service centers, while remaining cautious, are more likely to keep their SBQ inventories at their current levels rather than working them down further,” he adds. 

Pepich says Central Steel has been using more analytics to have a better understanding of its customers’ SBQ requirements and to position material close to its end-use markets. “This has helped us to only buy steel as needed through the programs we have with our mill suppliers,” which he says has been increasingly important given recent price fluctuations. While those ups and downs are less drastic now, last year there was a “wild ride” in prices driven by scrap costs.

Barger says that with many companies seeking just-in-time shipments, keeping inventories closer to customers is critical. He expects to reap logistical advantages when Central Steel’s new Chicago facility comes online at the end of 2023. 

One area driving the uncertainty about SBQ demand has been the automotive sector which, according to Gibbs, is responsible for more than half of SBQ consumption. Assuming the tentative agreements the United Auto Workers reached with the Big Three automakers are indeed ratified, the impact of the six-week strike upon SBQ demand will have been very limited. 

In fact, given the easing of the pandemic-related supply chain issues, Gibbs says the market could experience the mid-single-digit pickup in auto-related demand that had been predicted prior to the strike. Stephens says that any auto-related demand that was lost due to the strike could be recouped later this year or next year, especially if, as he suspects, North American light vehicles production moves up to just under 16 million vehicles in 2024.
 
One looming question, however, is what impact the eventual transition from internal combustion engine vehicles to electric vehicles will have upon SBQ demand. The EV share of the auto market is still small and there has reportedly been some resistance by consumers to buy EVs given cost, range and charging infrastructure issues,  so this is not expected to be a big issue until 2030 or so. “The world just isn’t ready for EVs yet,” maintains Ross Bushman, president of Summit Steel. 

While one cold-finished bar mill executive says this transition is expected to result in lower SBQ demand because of the different powertrain structure of EVs, Hoerr points out that with both types of vehicles having similar suspension and brake systems, coupled with the popularity of light trucks, it’s possible automotive SBQ demand could remain flattish. 

That, Gibbs says, could be the case if, as some producers maintain, SBQ is being used more for certain other EV components. In fact, TimkenSteel said during its third-quarter earnings call that its investment in two additional machining lines in Southwest Ohio will allow it to broaden its EV component offerings when they come online late next year. 

Others are less optimistic. “Given that EVs are heavier, they will have some different steel needs vs. a traditional ICE vehicle,” Charter Steel’s Wojahn points out. 

Gibbs says another big bucket of SBQ demand is for heavy equipment and both agricultural and construction equipment seems to be softening somewhat. In fact, he says that Caterpillar has recently announced certain selective layoffs with nonresidential construction appearing to slow, albeit not aggressively so. 

That softness, however, is primarily coming from private nonresidential construction, Stephen observes, with road, bridge and seaport infrastructure projects beginning to be supported by the recently passed bipartisan infrastructure bill, moderating the overall decline in heavy equipment demand. 

While it had been fairly strong earlier this year, Gibbs says the bloom has come off the rose somewhat for energy-related SBQ demand and is only expected to be up about 5 to 10 percent this year after jumping 50 percent in 2022. 

However, Alton Steel’s Hoerr says that has become more difficult to predict now. With changes in drilling technology and the reluctance of exploration and production companies to punch a hole in the ground unless they know there is oil there, the traditional rig count isn’t as much of an indicator of energy-related SBQ demand as it used to be.

“But overall, it isn’t as bad as it looks,” Stephens says. “People are still consuming SBQ, but they don’t need to buy as much given that next year demand might start a little slow.” 

This, Hoerr says, is because a lot of buyers are beginning to feel they have the upper hand once again. “Everyone was happy to just secure supply over the past two years, but now there is plenty of supply with a lot of companies willing to negotiate more with their customers.”

While SBQ base prices had come down slightly at the end of the third quarter, Pepich says they have begun to stabilize more recently. And even scrap surcharges, which tend to fluctuate on a monthly basis, have been pretty consistent over the past few months. 

It is not, however, a given they will continue to be stable. Summit Steel’s Bushman says they will likely come down further as demand slows, especially given that SBQ spot base prices, while down about 6 to 8 percent year on year, are still at historically high levels. 

And there hasn’t just been downward pressure on spot SBQ prices. Gibbs says 2024 contract prices could soften as well. “Three straight years of contract pricing gains is unprecedented. There needs to be some giveback,” he explains.

Hoerr agrees, predicting that, based on current market dynamics, 2024 contract hot-rolled SBQ prices could be down about $60 per ton. But it is too early to know for sure, he says, noting, “If things get busy again, that could change.”

Overall, 2023 has been viewed as a relatively good year for the SBQ market, only moderately softer than it had been last year, particularly in the second half. 

“What kind of year 2024 will be is yet to be written,” Gibbs says. Predictions vary ranging from it being a moderately better or moderately softer year, depending upon how resilient the U.S. economy and the major SBQ end use markets remain, and whether distributors and OEMs start restocking again.

[Caption:]
Central Steel & Wire’s new Chicago-area facility should come online by month’s end. (Photo courtesy Ryerson).