Supply glut keeps prices low
Service centers can process and ship cut plate orders in 2-3 weeks, or about half the time it used to take.; Market experts agree that expanded infrastructure reconstruction will boost procesed steel plate shipments.
By Tom Stundza -- Purchasing, 6/3/1999 2:00:00 AM
Despite the strongest demand in 25 years, the market for steel plate and structural products is oversupplied, which has collapsed spot pricing and cut delivery times in half for the so-called "heavy steels." Buyers can expect low prices and short leadtimes for at least the rest of this year.
Market outlooks don't vary too much, whether you talk to producers, analysts, or buyers. Paul Wilhelm, president of the U.S. Steel Group in Pittsburgh, says, "The cut-to-length plate market, especially, is saturated with inventory." A recent market analysis by Salomon Smith Barney confirms that the plate and beam supply/demand looks favorable to buyers for some months ahead. And Bette Lammerding, PM at Landoll Corp. in Marysville, Kan., is not the only buyer polled recently by Purchasing who has seen plate prices slide and expects them at the same price--or lower--by year's end. Early 1999 spot prices are 28% lower than their most recent peaks in late 1995 and early 1996.
Distributor and trader warehouses are so full of plates that buyers are unconcerned about supply even if domestic suppliers--who have complained to the government that huge volumes of low-priced imports are destroying their market--get trade relief through punitive tariff duties. In fact, none of the buyers surveyed monthly by Purchasing or the napm Steel Group have indicated concerns about plate or structural supplies since last autumn.
Just one year ago, supply was tight, spot prices were rising, and 60% of steel buyers who saw product shortages ahead cited plate as the mill product of greatest concern. Another 25% of the buyers polled by Purchasing feared that supply of beams soon might get tight. Then came the start-up of new domestic capacity and a flood of imports. By October, no steel buyers feared heavy-steel shortages of any kind, and none fear any now.
"Too many tons"
New supply of steel plates, beams, and other structural mill products totaled 24.3 million tons last year, a one-year record. But marketplace analysis suggests that 22.1 million tons actually was consumed by metalworking and construction firms. That left 2.2 million tons in stockpile depots and warehouses at the start of this year. And, although 1999 demand has been healthy and some domestic mills have slowed production, supply hasn't tightened. So service-center warehouses still have at least three and a half months' worth of supply of plate and structurals--more than 1.9 million tons--available for near-immediate delivery. (Actual tonnage probably is higher by 10% or so because a number of distribution firms don't report statistics.) And anecdotal information from traders indicates that supplies of imported plates and beams have been available for quick delivery throughout the first half.
For the past five years, actual annual plate and beam use in the U.S. has averaged close to 19 millions tons. Fresh annual supply, however, has averaged 20.5 million tons. In plate alone, supply has averaged 11.5 million tons/year since 1994. "Since the plate market is probably under 10 million tons a year, there's obviously too many tons chasing too few buyers," says Ralph Loveman, president of steel-plate-specialist service center Loveman Steel in Cleveland.
Domestic production capacity has grown sharply in recent years. Estimates place U.S. plate-making capacity soon at 12 million tons/year, and structurals closing in on some 10.7 million tons. Ipsco Steel is adding 2.5 million tons of annual capacity with a 1.25-million-ton plate mill running in Montpelier, Iowa, and another that size being built near Mobile, Ala. Nucor is building a 1.3-million-ton-per-year mill in Hertford County, N.C.
The former U.S. Steel Texas Works in Baytown, Texas, now operated by U.S. Denro, is producing 225,000 tons/year but plans to reach capacity of 900,000 annual tons. Through recent improvements, Tuscaloosa Steel in Alabama has increased capacity to 800,000 tons per year from 500,000 tons, and Oregon Steel Mills has a new 1.25-million-ton-per-year mill that replaced 450,000 tons of capacity at a former Portland, Ore., plate mill and a facility in California that was shuttered in 1995. The new structural capacity includes Nucor's 700,000-ton/year plant in Berkeley County, S.C.; Chaparall Steel's new million-ton plant in Petersburg, Va.; and Steel Dynamics Inc.'s similar-sized mill coming to Whitley County, Ind.
Trade complaints redux
The plate-supply excess was exacerbated last year when supply of 13.3 million tons entered the market at a time when OEM demand was starting to come off a three-year surge. Atop that, imports of 5.1 million tons, or 77% more than the tonnage of 1997, garnered 37% of domestic supply. So for the second time in three years, domestic mills are seeking trade relief against foreign steel plate suppliers.
Historically, coiled and flat plate imports have represented approximately 20% of total U.S. apparent consumption. In the summer of 1998, the steel market began experiencing an unprecedented surge in imports so that more than 40% of domestic plate supply came from imports in the second half of last year. Last autumn, a dozen domestic steel producers filed anti-dumping trade actions alleging dumping by hot-rolled coiled plate steel exporters in Russia, Japan, and Brazil. Final determinations are expected this summer.
In this trade action go-around, a request for punitive duties on imported cut-to-length steel plate is being sought by Bethlehem Steel, Gulf States Steel, Tuscaloosa Steel, Ipsco Steel, and the U.S. Steel Group of USX against plate mills in the Czech Republic, France, India, Indonesia, Italy, Japan, Macedonia, and South Korea.
"We are not seeking protection from competitive practices," says Joseph Cannon, chairman of Geneva Steel. "We can compete against fair competition, but not the illegal dumping of plate." He says his Vineyard, Utah-based firm recently entered Chapter 11 bankruptcy protection in large part "because of huge 1998 tonnage of ultra-low-priced foreign plate."
Domestic mills contend that foreign mills boosted import tonnage by 100% or more from past years and have driven domestic plate-making levels well below 70% of capability. The U.S. mills also claim the foreign mills underpriced plate up to 175% during 1998. Roger Shagrin, attorney for the U.S. mills, says "foreign producers who undersold the U.S. mills, essentially ruining the domestic plate business for domestic suppliers, caused the import crisis in 1998."
Representatives of Asian and European steel mills contend that their shipments increased in 1997 and 1998 simply to fill holes in supply left by a domestic industry that was slow to react with new capacity to a strengthening market.
Market forecasts
Generally, consumption of heavy steel is driven by non-residential construction, bridge and highway work, energy production, line-pipe fabrication, non-electrical machinery manufacture, and such capital goods as machine tools, railcars, and agricultural equipment. For more than two years now, plate and structural use has been bolstered by construction of agricultural processing plants in the Midwest, chemical processing facilities in the South, metals fabrication operations in the Southeast, and warehousing and shopping-mall development in the West.
The Federal Highway Administration continues to fund $21 billion/year to repair and rebuild the nation's transportation infrastructure, which requires steel plate and wide-flange steel beams. But there has been a slowdown in exports of heavy machinery, heavy off-road and on-road transport equipment, materials handling equipment, and industrial equipment. So, there's a chance actual end use of plates and beams will slip this year to 19.8 million tons.
Plate: More than abundant
Supply issues will continue to dominate the steel plate market for some months to come, suggests analyst Richard Aldrich at Lehman Brothers in New York. In 1998, Bethlehem Steel acquired Lukens Steel and formed Bethlehem Lukens Plate, which now is the largest plate producer in North America, with five plate mills located in Indiana, Pennsylvania, and Maryland. Other major producers are U.S. Steel, Oregon Steel, Geneva Steel, Gulf States Steel, Algoma Steel, and Citisteel. But, now, the scrap-fed minimills are eyeing the plate business. "Sizable new domestic capacity is coming on stream and steel service center inventories are too high, so even if imports slide, excess tonnage will keep the pricing structure very competitive," he suggests. End-use trends are often difficult to track because plate--which represents 10% of the domestic steel market--has so many different uses.
Steel plate makers are sensitive to trends in the oil and gas, gas transmission, construction, capital equipment, rail transportation, marine equipment, and durable goods segments. That was well ahead of expected growth in consumption, but it still left a 1.8-million-ton supply overhang at the start of the year. That overhang hasn't declined very much and has kept spot prices depressed and reduced processed-plate leadtimes to 10-12 weeks. This year's market is an enigma. Most analyses have forecast reduced imports, which appears to be happening, and higher domestic production, which isn't evident yet. That's probably because of the continued overhang of warehoused plate.
There's also some question about real end-use buying. Steel plate use by the construction industry actually should improve from last year's near-record tonnage because of high infrastructure spending, especially for bridges, and expanded manufacture of storage tanks, railcars, trucks, and barges. Expected to drop this year, though, is the manufacture of offshore oil and gas platforms, and the heavy pipe used in energy exploration and transmission. Also uncertain is the demand from the off-road vehicle, agricultural equipment, heavy machinery, and construction equipment sectors because of reduced export activity. So overall 1999 plate consumption could slide by as much as 5% to 10.9 million tons. Still, it would mark the sixth year in a row that plate use would exceed 10 million tons.
Historically, commodity steel plate consists of hot-rolled carbon plate. Carbon steel plate in coil form is the feedstock for the manufacture of ERW (electric-resistance welded) pipe, welded tubing, spiral-welded pipe, and for conversion into cut-to-length plate. Commodity steel plate in cut lengths is used in a variety of applications such as the manufacture of rail cars, storage tanks, machinery parts, ships and barges, bridges, and general load-bearing structures.
Specialty steel plate consists of hot-rolled carbon, high-strength low alloy, alloy, and heat-treated steel plate. Specialty steel plate is used to manufacture railroad cars, mobile equipment, bridges and buildings, pressure vessels, and machinery components. Specialty steel plate has superior strength and performance characteristics and typically is made to order for customers seeking specific properties, such as improved formability, hardness or abrasion resistance, impact resistance or toughness, higher strength, and ability to be more easily machined and welded. These improved properties are achieved by chemically refining the steel by either adding or removing specific elements, and by accurate temperature control while hot rolling or heat treating the plate. The heat treating process of quenching and tempering improves the strength, toughness, and hardness of the steel. Quenched and tempered steel plate is used extensively in the mining industry, the manufacture of heavy transportation equipment, construction and logging equipment, and armored vehicles for the military.
With end-use market sectors sizzling early last year, buyers were deeply concerned that supply wouldn't be able to keep up with the projected growth in demand. Even with new plate capacity, Ipsco Steel, Tuscaloosa Steel, and Oregon Steel Mills were struggling to fulfill orders, the Lukens Steel takeover by Bethlehem Steel was resulting in a shutdown of an uneconomical plate mill at Sparrows Point, Md., by the new Bethlehem Lukens Plate operations. Also, imports were expected to slide considerably from their 24% share in 1997. Following a l996 dumping action, Russia, China, and Ukraine agreed in mid-1997 to import quotas, which limited their cut-plate imports to 440,000 tons/year. This action moved the plate market from a scenario of high imports, excess capacity, and low prices in 1996, to lower imports, domestic mill allocations, and higher prices in 1997.
However, the carbon and alloy plate steel market was impacted last year by the Asian financial and economic crisis as offshore steelmakers began directing huge shipments to North America to generate currency. And, as one market insider describes it, "the roller coaster ride for domestic producers of carbon and alloy plate continued." As 1998 progressed, imports again exploded, domestic production collapsed, and prices nosedived.
The financial performance of steel plate makers "has deteriorated significantly over the past several months as prices and volumes have been, and continue to be, negatively affected by high levels of low-priced imports," says a report by stock and bond ratings house Standard & Poor's. And there's no argument from Curtis H. Barnette, chairman, president, and chief executive officer of Bethlehem Steel in Bethlehem, Pa., who says "the U.S. plate market would be a good one for domestic mills, despite added domestic capacity, if imports were under control." That hasn't happened yet.
Thus, Geneva Steel, which saw plate sales crash by half late last year, in February filed for Chapter 11 bankruptcy code protection from creditors. Joseph Cannon, Geneva Steel's chairman, says the bankruptcy filing "was due in large part to the dramatic surge in steel imports." Another plate maker, Gulf States Steel, is experiencing severe enough financial problems that it also may be forced into a bankruptcy reorganization. Gulf States missed the $12.8 million, semi-annual bond interest payment that was due April 15. Robert Schaal, CEO, says the company's shipments had been improving and backlogs had been growing, but sales prices still had been depressed. "The depressed prices have hurt the company's ability to generate enough cash to meet interest payments and pay for raw materials," he says.
Analysts contend that prices have been firming in the service center market. However, Purchasing's latest survey shows that buyers aren't accepting any increases. Note that in January, cut-to-length plate was selling at $335/ton on the spot market, or about $100 less than the summer of last year. Coil plate was at $360, a $110/ton drop-off. By April, plate in coil had slipped even further-to $340/ton. Interestingly, a Geneva Steel business report filing with the Securities and Exchange Commission noted that executives "expect that production levels, shipments, and pricing (of plate) will increase as imports decline and excess inventory levels are reduced. There is, however, no assurance that the trade cases will be successful, that duties will be imposed, that imports from countries not named in the cases will not increase, or that domestic shipments or prices will rise."
Beam capacity is building
The North American market for all structural products usually averages about 8.5 million tons/year. Last year, it was more like 10 million tons because of the unexpected growth in commercial and industrial construction, and steady machinery and equipment manufacture. Heavy structural shapes is a general term given to rolled flanged sections that have at least one dimension of their cross sections three inches or greater. The category includes beams, channels, tees, and zees if the depth dimension is three inches or greater, and angles if the length of the leg is three inches or greater. Structural products also include steel piling and such other special sections as wide-flange beams, standard beams, and Bantam Beams (M sections).
About half of the structurals bought annually are wide-flange beams. These are structural steel sections on which the flanges have equal thickness from the tip to the web, and are at right angles to the web. Wide-flange beams are differentiated by the width of the web, which can range from four inches to more than 40 inches, and by the overall weight of the beam, which is measured in pounds per foot. The strong U.S. construction economy has boosted beam demand, according to industry insiders.
However, steel beam producers "are in a constant battle against the concrete industry for the use of products in building frames and bridges," notes Bob Johns, sales manager for Nucor-Yamato Steel in Blytheville, Ark. Still, the mills have been pretty successful in raising use. In 1988, structural steel's construction market share was at about 38%. A decade later, it has risen to 50%. And by the middle of the next decade, industry projections will raise structural steel's market share as high as 60%. The optimism is based on a new marketing effort being funded by the mills, and coordinated by aisc Marketing of Chicago, which is funded by the American Institute of Steel Construction and the American Iron and Steel Institute. The steel being marketed is a new type of low-carbon, low-alloy, high-performance steel beam for bridge construction. The new grade of steel is said to be tougher and more weldable than existing carbon beam grades, so it could lower the cost of fabrication during bridge projects.
In a strong import year, foreign products typically hold less than 15% of total domestic structural supply. Last year, it was 38%. Nucor is considering leading a beam industry effort to seek punitive duties against foreign beam makers for undercutting market prices. Still, some analysts believe that imports will slow this year or next. That's because changing technologies have allowed several mini-mills to enter the heavier structurals business already, and the wide-flange supply tightness of the 1996 and 1997 construction seasons prompted Nucor, Chaparral, and Steel Dynamics to begin planning new structural steel mini-mills.
In coming months, nearly 2.7 million tons of new structural capacity will be operating. "As this new capacity comes on line, prices for wide-flange beams will continue to fall," says Applebaum at Salomon Smith Barney. "The new capacity will cause both a shakeout of older capacity and a reduction of imports."
Buyers also should note that Daniel R. DiMicco, VP and GM of Nucor-Yamato Steel, already has fretted publicly that "all this new capacity could actually produce excess of beam products and some very tough price competition among suppliers" early next decade.
The demand slippage in 1997 caused Bethlehem Steel to shut its structural mill and Northwestern Steel & Wire to shutter its plant in Houston. However, as construction spending continued to expand, the heavy wide-flange market began to heat up in the second half of 1997 and the first half of 1998. Leadtimes were about 12 weeks last summer, which caused some buyers to discuss product shortages.
There never really was a shortage, according to James L. Wroble, VP/sales and marketing for Chaparral Steel in Midlothian, Texas. "In a strong building market, when someone wants something, they want it now. If it's not there, they will quickly call it a shortage," Wroble says. Still, Chaparral Steel, Nucor, and Steel Dynamics have begun building new structural mills. The strength in construction activity and changes in building practices to more steel-intensive techniques have improved the short-term use and projected long-term growth in demand for heavy structural shapes.
Because of the Asian economic crisis, market mavens had expected increased imports. However, what wasn't foreseen was the double-digit surge in imports last year, which drove supply to 7.5 million tons--well in excess of growth in end-use purchasing of 6.8 million tons. That boosted start-of-the-year distributor inventory overhang to 700,000 tons (which actually rose to 750,000 tons in the first quarter); that inventory will keep prices down for most of this year.
Greg DePhillis, general manager of plate and structural products for importer TradeArbed in New York, thinks that "once the new U.S. mills are up and running, imports will slide and the domestic market will be more self-sufficient." However, most buyers polled point to comments by analyst Michelle Applebaum at Salomon Smith Barney's Chicago office that "prices will likely retreat later in the year as oncoming capacity drags down the market."
Buyers should note that Daniel R. DiMicco, VP and GM of Nucor-Yamato Steel, already has fretted publicly that "all this new capacity could actually produce excess of beam products and some very tough price competition among suppliers" early next decade.
Piling and light structurals
Unlike heavier structural grades, lighter-weight profiles are in plentiful domestic supply, so even a 29% surge in imports only boosted to 13% traditional supply share held by the foreign mills. (Offshore mills typically supply 10%-12% of U.S. market supply.) Prices of these light structurals, however, did take a hit because of the low-priced imports. Mini-mill suppliers, led by North Star Steel and Nucor, have been seeking a $15/ton hike in market tags for merchant bars in flat, angle, and channel configurations. Merchant bars started to fall under the weight of imports in the fourth quarter of last year and were selling for a low $280/ton in this year's first quarter.
Local mills contend that imports are sliding and demand is strengthening from firms that process these into components of builders' products and durable goods. However, market analyses suggest a drop-off in full-year use to 3 million tons, which should short-circuit any dramatic price inflation.
Market at a glance
Demand: Strong, for now. Construction-related demand is rising. But, with manufacturing for exports continuing to slide, actual end use looks to slip under 19.8 million tons this year.
Supply: Plentiful. Trade suits against foreign mills may reduce future imports, but stocks already are chocking service center and depot warehouses and new domestic capacity is being built.
Prices: Falling. Neither plate nor structural mills have been able to boost spot tags.
Plate market at a glance
Demand: Strong. Steel plate deliveries to end users and service centers rose to 13.3 million tons last year from the 10.7 million tons of demand in 1997 and the 11.4 million tons in 1996. Makers of welded large-diameter pipe, heavy machinery and machine tools, contractor's products, oil rigs, ships and rail cars, and bridge and highway components chewed up a good amount of plate--somewhere around 11.5 million tons.
Supply: Plentiful. Even with last year's strong demand, an inventory overhang of 1.8 million tons existed at the start of this year. It hasn't declined much this year, and has kept leadtimes for processed plate at 10-12 weeks. A year ago, leadtimes were 16-20 weeks.
Prices: Falling. Surplus supplies have kept spot prices depressed. Producers have been unable to get any increases.
Beam market at a glance
Demand: After rising to a cyclical high of 6.4 million tons in 1996, demand for wide-flange beams slipped to 6.2 million tons in 1997. As construction spending expanded, the heavy wide-flange market began to heat up in the second half of 1997 and the first half of 1998.
Supply: Excessive. Nearly 2.7 million tons of new annual structural capacity will be operating in coming months, creating supply excess.
Pricing: Low, and will go lower. As new capacity comes online, beam pricing will continue to decline.
Light structurals market at a glance
Demand: Strong. Very healthy construction activity and better-than-expected machinery manufacture have boosted demand for steel piling and light structurals, including bar shapes.
Supply: Plentiful. Supply hit an unexpected 3.5 million tons of apparent consumption last year. However, last year's use was about 3.2 million tons, so the market is oversupplied.
Pricing: Low. Has been affected by low-priced imports.
Aluminum shipments rise in October
11/18/2009Metals:''It ain't good out there''
01/30/2009Steel plate, the next battleground
04/07/1999China to Become Zinc Exporter
07/15/2009Plate supply exceeds use
05/31/2000
Now Playing: 
