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Tool Steel Market

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Mid-Year Pause Slows Tool Steel’s Climb Producers and distributors of tool steels report slowing activity, though the robust and evolving auto market gives them hope for 2013. By Dan Markham, Senior Editor The tool steel industry, a barometer of manufacturing, experienced a dip earlier this year as orders began to taper off from customers unsure about the economy. Since then, the market for tool steels used by manufacturers in the production of dies, cutting tools and items for other industrial processes has remained flat, at least compared to the robust growth of the past few years. “The orders have definitely slowed up,” says David Sharwarko, chief marketing officer for Tool Steel Service, Bridgeview, Ill. “The consistency isn’t there like it was a year ago. And from everything I’ve heard from my customers and other manufacturers, it’s pretty much the same scenario for them.” “Tool and die, as a whole, usually slows up a little earlier and picks up a little sooner [than the economy]. It takes awhile to build a die, and customers are not going to buy the raw materials to build it without the orders,” says Jim Walsh, tool steel manager for Pennsylvania Steel Co., Bensalem, Pa. Activity hasn’t completely dried up, suppliers say, but it has moderated. “My people are busy, but we could be doing more,” says Ray Gamache, operations manager for Ford Tool Steels, St. Louis, Mo. Some executives believe the problem is not just a drop in real demand, but also destocking throughout the supply chain. “I think distributors are very savvy in how they’re buying,” says Art Smoljan, vice president of sales for Bohler-Uddeholm, Elgin, Ill. “They’re holding off until they see where the pricing comes through.” Sharwarko says his customers are showing the same kind of reluctance. “They’re still buying inventory, but not buying the same breadth of inventory. In the past, someone might have wanted a full bar, but now they’ll take a 3- or 4-foot random.” One factor behind this hesitancy, sources suggest, is uncertainty. The serious economic issues in Europe and elsewhere around the globe, as well as the looming “fiscal cliff” here at home, are making buyers cautious. “We’re seeing a leveling of the industry,” says Bohler-Uddeholm’s Marketing Manager Patricia Miller, especially in foreign markets where the company has several mills. “But we’re not seeing as much softening here as they are overseas.” Whether the recent election will resolve some of the uncertainty and revive sluggish industrial markets remains to be seen. Some are skeptical that it will have much near-term effect on business conditions. “One of my customers said he was waiting until after the election. I don’t believe all that,” Sharwarko says. “You still have to process your business. You still have to keep operating.” Looking ahead to next year, most sources expect flat to slightly improved demand for tool steel products. “Right now, for the markets we serve, we are very optimistic we’ll have stable to slight growth in 2013. We hope certainty comes back into the market, and with certainty we’re anticipating better results,” says Smoljan. “Our view of the tool steel industry as we move into 2013 is to expect it to look a lot like 2012,” says Chris Zimmer, Universal Stainless, Bridgeville, Pa. “We’re not expecting a pop or a tremendous amount of growth. At the same time, we’re not preparing for a downturn next year, either.” One reason for that tempered optimism is the automotive market, a major user of tool steel. North American carmakers are on track for double-digit growth in production this year and are expecting similar increases in 2013. That increased volume is not the only good news. New government fuel-efficiency standards are going to force the auto companies to significantly lighten their vehicles over the next decade. That will require them to change the materials they use in vehicle designs, notably toward more aluminum and high-strength steels, which will correspond to a significant change in tooling requirements. “In the tooling world, the tools are consumable, so the number of vehicles being produced is very interesting. But what’s more interesting is the model changeovers,” says Zimmer. “With the many advances in the auto industry, whether it’s the aesthetics or the technologies of the car, we’ve seen a lot of model changeovers that require a whole new tooling set.” Miller says her company already has seen major changes in automotive materials, which started in Europe and are making their way stateside. “In die casting, we’re seeing a lot more focus on structural aluminum components for automobiles. You have to have steels capable of withstanding higher temperatures,” she says. Other characteristics of the next generation of tool steels include better press-hardening, improved heat transfer and better chip resistance. Additionally, the tool steel used to cut the aluminum or advanced high-strength steels must be much stronger than previous generations. “The strength level of some of those materials will almost be the same level as the tooling materials themselves,” she says. Tooling used to form plastics can be improved, as well, such as with greater corrosion resistance. “It’s a good opportunity, especially if there’s a little bit of a slowdown, for us to start to characterize what is needed in these areas,” Miller adds. Besides the flattening in overall demand, the North American tool steel industry has seen a major upheaval on the supply side of the equation. The number of foreign offerings in the domestic marketplace is up considerably in 2012, executives report. “I’m getting e-mail after e-mail and phone call after phone call from foreign mills that want to sell into the United States,” Sharwarko says. “That may be an indicator that it’s even slower over there.” Gamache says his company prefers to work with domestic suppliers due to quality concerns about product from overseas. While there are no major issues with the supply from more established tool steel producers such as Germany, products from South America, Eastern Europe or China are not as dependable. “We’ve never wanted to risk it. They make some fabulous offers, but it makes you wonder how you they do it,” he adds. John Packard, president and CEO of BTS-Patriot Inc., Dover, N.H., notes that some materials can only be sourced overseas. “There are some good mills over there, if you deal with the right ones. We prefer not to buy over there, but if they’re the only ones making it, we’re buying it.” Universal Stainless intended to use some of the assets in its 2011 acquisition of Patriot Special Metals in North Jackson, Ohio, to produce tool steel rounds, filling a niche in the North American market. But that plan has been scuttled. Since its announcement, the pricing for tool steel rounds has plummeted, Zimmer says, due to an influx of Chinese imports. “We knew it wasn’t going to be one of the richest markets from a margin standpoint, but we felt it was an opportunity to grow our business. We did a lot of developmental work to position ourselves to serve the market, but it has deteriorated to the point where it no longer makes sense to chase that business,” he says. Not all market disruptions have foreign origins. The supply chain is still sorting out how the 2012 acquisition of Latrobe Specialty Metals by Carpenter Technology Corp. will affect the supply-demand dynamic of the market. (Carpenter management did not respond to MCN’s requests for comment.) “I’m leery. For years, Carpenter has run hot and cold on tool steel. Every four or five years they’d be out pushing tool steels really hard, then take a back seat again,” Gamache says. Sources speculate that some products may be lost as a result of the acquisition. “Carpenter bought Latrobe for its melting capacity and high-temperature alloys. A lot of what Latrobe used to supply, as far as grades of tool steel, Carpenter may not melt anymore,” says Packard. His company experienced its own merger in late 2011 with the combination of Burgon Tool Steel and Patriot to form BTS-Patriot Inc. An example of a material that may disappear from the marketplace is Viscount 44, a pre-hardened tool steel alloy produced by Latrobe. Gamache says Latrobe was the only mill capable of making the exact material, which has sulfides for improved machinability. Other producers have comparable offerings, but they’re not the same product, he says. “That will be a dead grade,” he predicts, “and it’s big in the die cast industry.” The acquisition leaves the service center market with additional uncertainty, as Carpenter is still looking to unload Latrobe’s distribution business. “We buy a lot from Latrobe. They have a great product, and we never have any quality issues. They’re a great supplier for a lot of people around the country, and I’d hate to see that apple cart get upset,” Gamache adds.