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Thursday | 21 August, 2014 | 9:34 am

Market insights

By Corinna Petry

Demand for long products—dependent on consumption from markets as diverse as energy, construction and farming—keeps rising

August 2014 - On occasion, Modern Metals will drill down to specific product groups and take the temperature, learning from a
host of buyers and sellers what they experience and what they foresee. For this issue, we focus on steel engineered bar, merchant bar and rebar.

SBQ keeps flying off the shelves

Buyers and sellers of SBQ have seen strong demand from automotive and an uneven pattern of orders from the energy sector but they expect both will grow in the coming months.

“Our tons are up about 15 percent from last year,” says Dustin Preston, president of Capital Steel & Wire Inc., a DeWitt, Michigan-MM-0814-bar-SBQbased multilocation cold drawer, processor and distributor. “We have been able to snag some market share from performing additional processing. The other reason is we are smack dab in the middle of the automotive business, which is considerably stronger.” All the suppliers buying steel from Capital “are running full blast making parts.” 

Preston has also noticed the return of production domestically from overseas. “There is an increase in part numbers and jobs that were off-shored now working their way back. We have a lot of customers quoting that business.”

Preston is prepared for a second half that could be even stronger than the first. “In our market, July is a bit misleading. Everyone is on vacation. It’s a catch-up month. We hope to see consistent activity spread out through the balance of the year.”

At Ohio Star Forge in Warren, Ohio, “Our business is doing very well. Automotive is strong. We’ve seen an industrial pickup and energy infrastructure is up a little bit,” says Carl Paglia, director of sales and business development.

A Canadian bar company’s shipments during the first half were not appreciably greater than last year’s. “The timing of orders shrunk,” says Mike Pitterich, chairman of Union Drawn Steel in Hamilton, Ontario. “We have to read customers’ minds and have it available in seven days, versus the historic six weeks. They are playing the market very tightly ever since 2008.”

Last year, drawers and other bar processors had built up work order backlogs because some capacity was lost to the recession. MM-0814-bar-chart“That backlog has disappeared. We are moving faster,” Pitterich says.

He’s optimistic about future SBQ demand. “We are investing in capital projects.” Echoing Capital Steel’s Preston, “We think a lot of the overseas production will come home” because end users have faced quality and lead time problems and higher transportation costs.

“Also, overseas labor rates have gone up as well as energy costs, while U.S. and Canadian energy rates are lower.” 

As a result, says Pitterich, “we are bullish on the bar market. We see the automakers continue to increase production and sales and we see further off-road equipment production creeping up.”

Joe Baudo, chief operating officer and chief financial officer for Summit Steel Corp., Chagrin Falls, Ohio, says his company’s revenues and tonnage are up by healthy double digits—in the mid-teen to mid-20 percent range.

“We should see more activity in the second half and that will accelerate into 2015,” he forecasts, citing the automotive sector, a recovering energy market and heavy truck build rates—which is “one of the reasons we’re doing so good.”

The first half turned out well for Alloys Unlimited & Processing, Mineral Ridge, Ohio, says President Gregory J. Nackino Jr. The second half will remain steady or improve slightly. Customers’ backlogs are not as long or as large as last year, “but there is still a backlog. Machine shops are able to fill up capacity. They are working full shifts; some are pushing it out to two and three shifts,” which he says is driven by the Marcellus shale drilling boom. 

Like Union Drawn, Alloys Unlimited & Processing has been investing. “We bought new trucks and a 32-inch-diameter saw,” says Nackino.

Although 2014 started off slowly due to the harsh weather, there is “a lot of optimism” that the year will be as good or better than 2013, Scion Steel Vice President Mickey Tschirhart says. “We think business is sustainable. We’re not cutting back; in fact, we are long and bullish on inventory.”

Merchant bar sales steady

Distributors of merchant bar offer a mostly promising assessment of mid-year demand and prospects through December.

MM-0814-bar-merchant“We experienced a little bit of uptick year over year: up 6 percent in pounds shipped and 8 percent in sales dollars,” says Nick Demana, president of Benjamin Steel in Springfield, Ohio. 

One driver for the higher volume “is we are doing a little more fabrication, punching holes and slots, and we added a third profile laser to cut shapes,” says Benjamin’s sales and marketing vice president, Joe Massero.

“We service a lot of small to mid-range structural fabricators, and their volume is up,” adds Dan Kelly, senior vice president and
vice president of operations.

The sales staff’s forecast represents “a mixed bag. We will see a steady increase in demand from some customers, like in the last six months, but other markets get hot and then turn cold, especially seasonally,” Massero says. Summer factory shutdowns will slow shipments, then he expects a steady pick-up again starting in late August.

Mill inventories of merchant bar “are still pretty solid,” Kelly says. “We would like to see them lower, which increases the value of our inventory on hand.” However, due to a shortage of truck drivers in the Ohio Valley region and beyond, deliveries have lengthened, which compelled Benjamin to put in some buffer stock of must-have items.

Admiral Steel’s first-half activity improved sharply. “We saw a 31 percent increase in tonnage compared with the same period last year,” says Kevin Averill, building products manager at the Alsip, Illinois-based distributor.

“I think the economy is getting better. We are seeing more jobs coming up [for bid] and more inquiries becoming actual orders.” As a result, Admiral “brought in a couple extra people in the shop, and we are definitely bringing in more material,” Averill continues. “I think demand for our products will be consistently higher, and growth will remain at a steady pace.”MM-0814-bar-chart2

The David Hirshberg Steel Co. recorded a better than 15 percent increase in sales during the first six months of 2014, says Vice President Tom Graham. “We have been busy. Some fabricators tell us they’re still slow but we also sell to companies’ maintenance and repair operations, supplying projects inside plants.”

Like Massero, Graham expects summer order rates will dip somewhat, then bounce back in fall.

Rebar situation tenuous 

The value of construction put in place during the first five months of 2014 (the latest data available) was $358.1 billion, up 8.2 percent from less than $331.1 in the same period last year. Highway and street spending rose 4 percent and transportation-related spending rose 3.4 percent. Total private sector spending rose 11.9 percent year over year while public project spending declined 0.8 percent, U.S. Census data show.

The resurgence in commercial construction activity, although far below the pre-recession peak, is welcomed by rebar suppliers like Cincinnati, Ohio-based Contractors Material Co.

“Bidding has been pretty good since March and hasn’t let up,” company secretary Robert Faircloth says. “We have won some projects and we are buying more material from the mills.”

MM-0814-bar-rebarContractors boosted employment 10 percent this year.

However, the strength seen during the first half “could all come to a screaming halt if Congress doesn’t come up with a highway bill,” says Faircloth, referring to the multibillion-dollar federal funding program that is supposed to be long term—six years—but is continually extended every nine to 12 months. “If that trust fund goes bankrupt,” which could happen as soon as August, public projects stop dead absent monies to pay contractors and vendors. “The 800-pound gorilla for the
rebar industry is the transportation bill.” 

Others agree it’s important. “We are hoping the government gets off its butt and legislates funding for infrastructure, which is in such disrepair,” says one fabricator.

Domestic rebar producers anticipated a positive outcome for their petition with the U.S. International Trade Commission, claiming Mexico and Turkey exported unfairly valued and subsidized rebar to the United States.

The average monthly volume of foreign rebar entering the U.S. during the first five months of 2014 was 121,375 tons, or 36 percent above the 2013 monthly average and 211 percent above 2010, International Trade Administration records show.

Although the Commerce Department imposed preliminary tariffs on Mexico and Turkey, producers and the United Steelworkers union were disappointed with the mere 2.6-percent duty margin applied to Turkish rebar. USW International President Leo W. Gerard expects “further verifications [of illegal trade practices] will show the proposed duties need to be increased.”

“The rebar case has had no impact on business so far,” a southeastern fabricator tells MM. “There appeared to be legs under the market because of protectionism, but when the low margin on Turkey came out, that shot the bloom off the rose. Momentum, and pricing, took a step back.” MM

 

 

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