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Tool Steel Report

No Longer Leading the Way

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MCN Editor Dan Markham Tool steel’s role as an economic precursor was upended during the once-in-a-lifetime pandemic-induced downturn.

Tool steel tends to be a leading indicator for the industrial economy, a harbinger of good or bad things to come. 

When an industry anticipates a slowdown in economic activity, the first step along the way will be a reduction in the need for new tooling. 

Similarly, before any ramp-up in activity can take place, the automotive companies and appliance makers and other equipment users must have the proper dies in place to meet the expected increase in demand. 

But as with so many other economic maxims, the old rules don’t necessarily apply in a pandemic-prompted slowdown. When the brief mid-year recession rocked the world starting in late March, it was largely an all-at-once occurrence. 

“It usually goes down before the others and comes back before the others, because you can’t make the product unless you have the tooling in place,” says Rick Resner, president of Hudson Tool Steel Corp., Anaheim, Calif. “In this mini-recession, everything hit at the same time. With the economy shutting down the way it did, all of us across the metals world got hit at the same time.”

Those early-spring reverberations continue to be felt, six months later. While activity levels have been on the climb since bottoming out – for most companies that floor being hit sometime in the second quarter – the industry is nowhere back to pre-pandemic levels.

How bad typically depends on the markets a company served. 

“It’s been bad all summer long,” says Ray Gamache, operations manager of Ford Tool Steels, St. Louis, Mo. “We’re probably down around 15 percent overall.”

For Peerless Steel’s David Wolff, whose company has a strong presence in the auto market, the shutdowns of the major car makers had a major effect on the market. “We have a division that does strictly machining of tool steel. Their business dropped by 66 percent during the auto shutdown,” says Wolff, president of the Troy, Mich.-based company. “We’re back to about 70-75 percent of pre-pandemic volume, but it was pretty devastating.”

And, as he sees it, the road back up will take much longer to navigate than the trip down. 

“We’ve got another 13 months of scratching and clawing.”

Resner agrees. “I wouldn’t call it a V-shaped recovery. I wouldn’t call it a U-shaped recovery. It’s more like a check mark. It went down really fast. It’s coming back, but we’re coming back at a much slower pace,” he says. 

Automotive has long been the kingpin in the tool steel world, accounting for approximately 40 percent of the market for the material. Thus, it was no surprise the industry would be hit hard by the across-the-board closures of the domestic assembly plants. That condition lasted for up to two full months for the Big 3 automakers, though some of the New Domestics were back a few weeks earlier. 

“Tool steel is automotive oriented. If you look at what the Big 3s and Tier 1s are going to do, those are the big ones that move it,” says Tom Bell of Groditz Steel North America, a German tool steel supplier. “If you set aside COVID-19, 2020 would have still been down, but not as far.”

The pandemic might have slowed one of the big trends in the automotive world, the push toward electric cars and other vehicles that are less reliant on fossil fuels. That’s a double-edged sword for the industry. Initially, it may boost demand as the changeover takes place, particularly when automakers are producing similar numbers of EVs and conventional cars and trucks. However, the more long-range trend is somewhat worrisome. 

“There is less die work and fewer moving parts on an electric vehicle than a gas- or diesel-powered vehicle. It seems to have a slowed down a little, but long term that’s a concern,” Wolff says. 

Hudson has only a small portion of the auto market, instead selling more of its material into general industrial markets that are less tied to consumer products. “We started to see that come back a little quicker than automotive,” Resner says.  

However, in its California facility, the company has a significant presence in the aerospace tooling market, which has not yet bounced back from the downturn. “It’s still flat, and I’m not sure how long it’s going to be flat,” he says. “We’ve heard the Max-9 could be approved to fly by the end of the year, but that seems to be a moving target.”

The distributors were generally pretty positive about how the mills performed during the worst of the pandemic, in all ways. “We have a fair amount of product sourced overseas, and surprisingly we had very little disruption,” Wolff says. 

Resner agrees. “We haven’t seen a disruption in supply. The mill suppliers have been on time. We haven’t seen the price change. It’s interesting, in 2008-09, in a six-month to one-year period of time, we saw prices drop considerably. This year, we’ve haven’t seen that.”

And it wasn’t just the mills. “I’m actually impressed with how well everybody behaved, whether it was customers, suppliers or our competitors. If you liken it to the 2008-09 recession, we saw some very irresponsible pricing and people trying to dump inventories. In my opinion, there was a lot less panic this time,” Resner says. 

Gamache says he’s had no problem sourcing plate product, but has some issues with availability on rounds. “It gets a little tricky sometimes trying to find some of the standard-sized rounds. My mills say they’re not keeping as much because there’s not any money in it.”

Gamache sources all of his material from domestic mills, which isn’t terribly easy. Imported material makes up a healthy percentage of the North American market, particularly in more niche grades the domestic mills aren’t interested in producing.

Some of that has changed with the institution of Section 232 tariffs two-plus years earlier. “Prior to 2018, I think in general two-thirds to 70 percent of tool steel was imported. It has changed,” says Bell, a veteran tool steel executive who now represents Groditz as its vice president, Americas. “Ellwood, Finkelstein, Universal, Latrobe, ArcelorMittal have probably seen an increase in their order books because of that.”

“I think the tariffs have affected the whole market,” says Ron Crouse Jr., president of American Specialty Metals, Willoughby, Ohio. “Obviously, those increases have been passed on. It appears it is passed right on down, with every level absorbing a little bit of it.”

The tariffs do make it more difficult for foreign producers to stay in the market, with the 25 percent duty leading some to abandon the U.S. Bell’s company, which has some extremely large sizes and unique grades, is merely trying to find a few holes to fill in the U.S. market. 

But a lot of his company’s efforts will be focused north of the border. “It’s a little easier for us there because we don’t have to worry about Section 232, and there are no duties from Germany to Canada,” Bell says. 

Though the tariffs have been problematic for some, they’re also somewhat ingrained in the market right now. “One of the things that has us nervous is we have a change in presidents, is the incoming president going to have the same trade policies? If he were to remove tariffs, our product suddenly gets devalued by 25 percent and that would be catastrophic,” Wolff says. 

Nonetheless, one universal sentiment is Nov. 4 couldn’t get here soon enough. Getting past the contentious election season, regardless of the outcome, will erase one of the uncertainties hanging over the economy. 

“We’re continuing to prepare for the recovery. Some of it is going to depend on the election, fortunate or unfortunate,” Crouse says. 

“Some people are just sitting on the sidelines with a lot of cash, not doing anything,” says Pat Franze, owner of Randolph Tool, a maker of industrial knives based in Hartville, Ohio. “Some are just holding back until after this election.”

Gamache thinks the end of election season will certainly goose the market. “You can only prepare for so long and then you have to buy a product. My customers are telling me they’re quoting heavy, they’re starting to get nudges from their customers saying they’re going to roll on things soon,” he says. “I think once the election is over with, we’ll be right back into it and we’ll probably all be busting tail to keep up.”

Crouse offers a similar assessment. “We’ve increased and continue to increase our inventories in anticipation of the upswing. The pent-up demand is in the pipeline. When they open the spigots, it’s going to turn us loose.” Still, there remains quite a bit of uncertainty within the market, aided by the mid-October spike in COVID-19 cases across the U.S. 

“With all of this happening in an election year, no one knows what’s going to happen,” says Franze. 

“We used to be able to tell when you would be busy and when you would be slow. That doesn’t apply anymore,” says Gamache. 

Ford Tool Steels is “well-stocked and ready to ship material in a timely manner,” says President and CEO Susan L. Gasser. 
(Photo courtesy Ford Tool Steels).