Flat sales weaken pricing
By Staff -- Purchasing, 3/8/2001
What's happening: Mechanical steel tubing is the industry's bellwether grade. It is used in a broad range of consumer and commercial products. As its name implies, mechanical tubing is used in mechanical machinery as well as industrial, commercial and material-handling equipment, and electrical and non-electrical machinery. After peaking at 4.9 million tons in 1997 and 1998, use of mechanical steel tubing dropped 10% to 4.4 million tons in 1999. Use recovered 4.5% last year to 4.6 million tons. That was, however, well under the 10%-15% growth that had been anticipated by industry insiders. With imports controlling 30%-plus of market supply, domestic market prices slipped by 2.5% in 1999 (and stayed flat last year). With demand wobbling at the start of this year, tags have dropped back to early 1999 levels. The mechanical tubing business is highly fragmented with more than 100 participants geographically diversified across North America. Welded mechanical tube competition is stratified, with quality ranging from non-commodity products to more commodity-like products, which compete primarily on price. Steel tubing suppliers often adjust prices as a result of flat-rolled steel price actions, and hot-rolled sheet prices recently have dipped to 20-year lows. Another key issue for tube mills is that stockpiles of unsold mechanical tubing have continued to average three months' worth of supply for the past several years. That's why buyers have seen deliveries at 14-15 days from time of order over the past two years, down from 19-20 days in 1997-1998. Mill sales execs say solid year-2000 demand from the industrial machinery, construction and consumer sectors failed to offset another weak year of sales from the agricultural equipment sector, which collapsed two years ago. Now, the entire customer landscape is clouded in uncertainty. That's why the early forecasts suggest use is stagnant at about 4.6 million tons this year. And few analysts suggest any dramatic resurgence in pricing.
Why it's happening: Mechanical steel tubing sales growth was healthy in the first half of last year, especially to fabricators of hydroformed tubular steel components for the automakers. However, demand stalled at midyear and eroded in the second half because of slow sales to fabricators of custom-designed parts for various non-automotive original equipment manufacturers. In fact, last year's 3.5% end-use growth in mechanical tubing use can be pinned to the expanded demand for hydroformed components by automakers trying to reduce subassembly weight and fabrication costs. Some components for automobiles and light trucks now use tubular steel for frame rails, cross members, suspension cradles and pillars, engine subframes, camshafts, space and frame supports, cross-car beams, windshield headers and roof rails. Also, there's been some use of tubing to fabricate headrest supports, seat components and trailer hitches. Looking ahead to 2001, mechanical tubing demand is expected to fade because of the overall slowdown in manufacturing-and especially the projected 12.5% reduction in U.S. assembly of cars and light trucks. Atop that, any substantial drop in consumer confidence will reduce sales of tubing for such consumer products as home appliances, furniture, sporting goods, and lawn and garden equipment.
What to expect: Major suppliers include Bull Moose Tube Co., Chesterfield, Mo.; LTV Copperweld, Pittsburgh; PTC Alliance, Pittsburgh, a merger of Pittsburgh Tube Co. with Alliance Midwest Tubular Products; Vision Metals, Ann Arbor, Mich.; Plymouth Tube Co., Warrenville, Ill.; Allied Tube & Conduit, Harvey, Ill., and Rhino Tube of West Haven, Conn. Their mechanical tubing include as-welded, drawn-over-mandrel, seamless hot-rolled, heat-treated hot-rolled, seamless cold-drawn and heat-treated cold-drawn products. Buyers at OEM firms will see these and other mills expand marketing this year of as-welded tubing. This type of tubing is made through an electric-resistance welding process and is suitable for a number of end uses with no further processing.
Supply: The mechanical tubing business is highly fragmented with more than 100 participants geographically diversified across North America. Mergers haven't cut capacity.
Demand: Purchasing has stalled because of slowing sales to fabricators of custom-designed parts for various original equipment manufacturers, including automotive.
Pricing: Spot market price weakness began late in the year. Contrary to mill exec assertions of pending price recovery, weak tags will continue at least through the first half of 2001.
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