Demand keeps pace with expanded supply
Supplying buyers' demand for value-added quality galvanized sheet, steelmakers are adjusting old hot-dipped coating lines or building new ones with the latest in computer-controlled tempering, tension leveling, coating weight control, width and gauge control, and surface inspection systems.; PHOTO: LTV STEEL
By Tom Stundza -- Purchasing, 4/9/1998 2:00:00 AM
Coated sheet steel demand is strong, supply is tight, leadtimes are extended, and prices are climbing skyward.
Consumption has been climbing for the past six years, and this year's new-order rate is quite healthy--especially for galvanized. Prices are high, and rising. The mills already are booking third-quarter orders. Leadtimes have eased slightly from distribution, but it still takes 6-8 weeks to get galvanized and painted sheet delivered from the mills. "Coated sheet, especially galvanized steel, has really held up both in demand and price," agrees analyst Richard Aldrich at Lehman Brothers. Even the tinplate mills are busier than usual. While a slowing manufacturing economy could chill some of the second-half demand growth, forecasters still reckon that 1998 use will rise by almost 2% over last year's lofty 25.5 million tons.
Looking past this year, however, the demand outlook is uncertain and new capacity may even glut supply. "With all the new capacity being installed, I wouldn't be surprised if the market went into price-dampening excess at some point down the road," says Tom Abrams, analyst at Credit Suisse First Boston. Still, neither he nor any other market maven is sure when the tide will turn. "The best guess would be 1999, at the earliest," he says.
Today, there's more than 26 million tons of annual coated-sheet capacity in the U.S. Some market analysts think prices could slide in the second half if imports increase and domestic demand falters. Neither event seems likely just now. Imports were only 11% of the U.S. market last year--15% of the tinplate market, 11% of zinc-coated, and 6% of painted sheet--and may slide this year. "Demand in the British, German, French, and Belgium markets is very strong and deliveries still are restricted," says analyst Chris Sharp at meps (Europe) Ltd. "There's plenty of European demand to absorb any excess supply that might come from Asia."
In the U.S. heartland, service-center executives agree that bookings for galvanized sheet right now are healthy and are being made at higher prices. According to First Boston's Tom Abrams, "current pricing power suggests the market is undersupplied." Little wonder that East Coast and Midwest mills are bullish.
Nucor's president, John Correnti, says "the galvanized business right now is very, very, very good." He notes that the domestic mills were sold out for second-quarter deliveries in late February. Market prices this quarter have risen to $600-610/ton, depending on the producing mill. Steel buyers agree that demand for galvanized sheet remains strong, and they note that traditional European suppliers have reduced offerings because of heavy sales at home.
Upshot: "We made a mistake by not increasing galvanized sheet steel prices for April deliveries by $20 per ton, like our integrated-mill competitors did," says Correnti. "We should have gone up more than $10 a ton since the higher increase would have been accepted by customers."
Coated-steel buyers in the Midwest and Southeast, who have struggled with tight supply and extended leadtimes, aren't exactly fighting the latest price hikes. But, they are growing somewhat cautious about second-half purchases. Purchasing's latest survey of steel buyers found about a third considering no increase or a reduction in second-half orders. "Business is very good right now, but a slowdown in manufacturing or construction could make us reconsider order bookings for zinc-coated or painted sheet," says a buyer for a Michigan metal-stamping plant.
And, in the West, the market already is in turmoil. Prices for galvanized steel sheet have dropped up to $20/ton to $580/ton after a proposed January hike to $625 failed to stick. This has surprised some market observers who have cited strong demand and a relative absence of galvanized from offshore. However, a closer look finds some excess market supply. First off, West Coast steel plants--California Steel Industries, USS-Posco Industries, MSC Pinole Point Steel, and BHP Coated Steel--produce galvanized more than any other flat-rolled product.
Since West Coast regional galvanized and painted sheet primarily are construction products, demand recently has become vulnerable to the heavy storms brought about by El Nino. Industry insiders say metal-building manufacturers have been forced to ask mills and distributors to stretch out shipments because they can't work with all the recent record amounts of rain. Finally, there has been a noticeable rise in the amount of galvanized imports into California from mills in Mexico, Japan, and China.
An eye on future supply
"International markets remain tight," says analyst Abrams, "but nationally, both coated-steel demand and supply are growing, so the market appears relatively balanced just now." However, "new capacity could outpace demand in coming months if automotive and construction activity falters," notes analyst Peter Marcus at PaineWebber. "If that happens and causes a slowdown in orders in the face of new capacity, it could mean quite a difficult pricing environment for the U.S. mills."
Independent steel analyst Chuck Bradford is even more blunt: "The demand for zinc-coated steel is very strong right now, but we will be facing an oversupply of galvanized steel in the not-too-distant future." He points to new coating lines run as joint ventures, such as Triple G in Granite City, Ill., owned by National Steel and Bethlehem Steel, and the U.S. Steel/Kobe Steel-owned Pro-Tec Coating Co. facility in Lorain, Ohio.
Other capacity is inside steel mill complexes, such as Steel Dynamics in Butler, Ind.; National Steel's Midwest Division in Portage, Ind.; AK Steel's new Rockport, Ind., steel works, and Bethlehem Steel's plant at Sparrows Point, Md. Yet others are independent processing mills, such as Worthington Steel's plant in Delta, Ohio; the MetalTech, NexTech, and GalvTech mills in the Pittsburgh area, and the BHP Coated Steel plant in Kalama, Wash.
"Certainly, overcapacity is possible," agrees analyst Aldrich at Lehman Brothers. "Typically, when you have a good many players and demand is high, people scramble to build capacity, and then, things get overdone." However, he says that may not happen until 1999 or later.
Industry insiders disagree with the analysts about imminent excess capacity. "I don't think there's going to be an overabundance of supply," says Ron Maciejowski, general manager of Worthington's hot-dipped galvanizing operation in Delta, Ohio. "You'll see a shakeout of inefficient suppliers, especially the closing of the old lines at the mills. So far, none of that has happened because demand has been so strong. At some point, though, it will happen."
Walter Crawford, manager of engineering sales for Industrial Galvanizers America in Chesterfield, Va., also believes there are enough markets to keep steel mills and independent galvanizers working near capacity for some time to come. "Believe me, there is plenty of demand out there," he says. "It's a very good market, and it could get better if marketing efforts into the bridge-construction market bear fruit. And there will be marketing efforts in such non-traditional areas as roofing and building exteriors in the years ahead."
"The construction market has been extremely strong," agrees Maciejowski. "There is continued demand for galvanized for use in steel studs or heavy steel framing." A National Steel marketing exec also says "there has been tremendous growth in construction for coated metal--galvanized and prepainted--so there is good business for everybody."
Demand is ablaze
Coated sheet has been a hot steel commodity for many months. After a decade of average annual use of almost 18 million tons, annual average demand for the past five years has been almost 24 million tons. This surge in use has been caused by a steady growth demand from major appliance makers, a surge in demand from automakers switching to value-added galvanized and galvannealed sheet from cold-rolled stock, a gradual rise in the use of galvanized steel as a wood replacement in new-home framing, and expanded use of painted and acrylic-coated sheet in the manufacture of machinery, commercial and consumer goods, and such construction products as home and garage doors.
"There definitely is a structural shift to use more coated steels in products such as automobiles and appliances," agrees analyst Abrams. "The anti-corrosive qualities of coated steels in exposed and unexposed automotive and appliance parts have helped drive coated-steel demand." He continues: "The pattern is to increasingly use materials that assure a product performs the same way five-to-ten years down the road as it did initially."
Carbon and alloy-steel sheet are covered with such protective coatings as nonferrous-metal alloys or polymeric paints to provide a protective layer against the environment. While automotive and appliance remain the key end-use sectors, demand for coated steels has been growing steadily from makers of machinery, construction materials, recreational equipment, and myriad other industrial, commercial, and consumer products.
In fact, coated sheet has such widespread end-use applications that 38% of the 66.4 million tons of sheet steel used last year in the U.S. was covered with zinc, tin, aluminum, aluminum-zinc alloys, paint, acrylic, or some other protective coating. Also note that these products accounted for almost 21% of the 124.6 million tons of all steel mill products consumed last year in the U.S.
Since tinplate sales have averaged 4.3 million tons over the past 15 years, growth in use has come for other coated products--painted and zinc-coated. And for these products, the recent surge in demand has been unprecedented. Painted and polymer-coated sheet has risen from a previous 10-year annual average of 2.8 million tons to 3.3 million tons in just the past four years. And the zinc-coated products have exploded to an annual average of 16.8 million tons, compared against an average 11.5 million tons for the previous decade.
Part of the reason for the buying boom has been the continued strength in U.S. production of automobiles, light trucks, minivans, sports-utility vehicles, heavy trucks, off-road construction vehicles, and major appliances. Maciejowski of Worthington says that materials-sourcing changes by the Big Three automakers and several transplants to hot-dipped galvanized for both exposed and unexposed parts is one of several factors driving zinc-coated demand.
In fact, a Purchasing survey of buyers finds that stamped and roll-formed automotive parts remain the No. 1 use of zinc-coated steels, followed by assembly components for appliances. Analysts suggest that these end-use industries alone consume 90% of all zinc-coated steel sheet.
Automotive and machinery manufacturing is expected to remain pretty healthy this year, offsetting any demand slippage for coated sheet from appliance makers and construction products firms. Thus, the consensus forecast sees slow growth of about 2.5% in U.S. coated-steel use this year to 26.1 million tons.
Of course, the anticipated 1999 slowdown in consumption might not occur because of the growing non-traditional uses for coated metals. Purchasing's buyer survey also finds other extensive uses for zinc-coated sheet such as roofing, house-framing components, computer chassis and personal-computer housings, ductwork and venting systems, parts for heating, ventilating, and air conditioning systems, interior residential and commercial hardware, exterior door skins, exterior storage buildings, playground equipment, and guard-rail purling and clamping posts.
A closer look at coated
U.S. galvanized use was a record 17.7 million tons last year. It could reach 17.9 million tons this year. Galvanizing is the prevalent way to coat steel; even when the steel is painted, it first has been given some type of protective zinc coating. The dominant coating method is through the hot-dip process, where the cold-rolled steel substrate passes through a bath of molten zinc. The newest technology is electrolytic galvanizing ("electrogalvanizing") where the coating is electrodeposited from a cold zinc sulfate solution. The steel is coated with pure zinc or, for greater corrosion resistance and better heat resistance, with zinc alloyed with aluminum, nickel, or iron. The most established of the alloys is Galvalume (aluminum, zinc, silicon) and Galfan (zinc, aluminum, mischmetal).
Consumption of tinplate in the U.S. was the same (4.3 million tons) last year as in 1996. This year, growth is forecast to 4.4 million tons because of the impact of the Asian financial crisis. Tinplated steel is the source material for such things as aerosol cans, paint and other solvent containers, various canisters, oil-filter jackets, bakeware, lighting fixtures, shelves, picture frames, battery jackets, and builders' hardware. However, tin-coated steels usually are equated with sanitary food cans and other consumer product cans.
Canmaking has been pretty flat for some time, but Commerce Department analysts say fresh food product exports to Asia are expected to drop dramatically this year. This will make more fruits and vegetables available for canning in 1998, especially tomatoes--the largest single product processed and packed in food cans.
Painted and acrylic-coated steel, which is dependent on construction and building-modernization activity for 55% of sales, has sold well lately. According to the National Association of Coil Coaters, more than half of the prepainted sheet steel goes into building products. But a growing volume goes to manufacture automotive parts, major appliances, office furniture, and myriad other industrial, commercial, and consumer goods.
Transportation, appliance, metal furniture, and consumer goods are becoming important markets. U.S. demand was a record 3.5 million tons last year. North American coil coaters have had more success finding new end-use markets for prepainted aluminum sheet than for prepainted steel sheet. However, the surprisingly strong construction industry could trigger 3.6 million tons of painted and acrylic sheet.
Market at a glance
Demand: U.S. apparent consumption of coated steel sheet set a record last year at 25.5 million tons. The manufacturing economy may cool this year, but analysts see coated-sheet use rising by almost 2%.
Supply: Domestic galvanized stock has been tight despite two-dozen new coating lines. Imports, which amounted to 11% of supply in 1997, could slip if European demand continues its recent high rate of growth.
Prices: Galvanized prices are rising, and the mills are hinting that another increase will occur this autumn if demand keeps climbing. Analysts, however, see a plateauing due to expanded supply.
A glossary of coated metals
Aluminized: Steel coated by hot-dipping into molten aluminum.
Durasteel: Steel coated with a zinc-nickel alloy, either by hot-dipping or by electrolysis.
Electrogalvanized: Steel coated with zinc by electrolysis.
Galfan: Steel coating that is 95% zinc, aluminum, and mischmetal (developed by the International Lead Zinc Research Organization).
Galvanneal: Steel with zinc-iron alloy surface created by wiping or heat-treating hot-dipped galvanized (invented by Bethlehem Steel).
Hot-dip galvanized: Steel coated by hot-dipping into molten zinc.
Laminated: Ferrous or nonferrous metal coated with solid, tinted, clear, decorated, or textured plastic film.
Painted (or prepainted): Ferrous or nonferrouus metal (usually aluminum) coated with an organic polymer, usually a complex blend of either thermosetting or thermoplastic polymners plus pigments, solvents, and other additives.
Tinplate: Steel coated with tin or tin alloys by electro-deposition.
Zincrometal: Steel covered with a base coat of zinc-chromium alloy and a top coat of weldable zinc-rich primer (invented by Diamond Shamrock).
Zincromet: Steel covered with a base coat of chromium and zinc dust and a topcoat of zinc- and nickel-rich organic paint (developed by Kawasaki Steel).
Zincroplex: Steel covered with a base coat of electrogalvanized zinc and a topcoat of zinc- and nickel-rich organic paint (invented by Metal Coatings International).
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