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Producer Outlook
Thursday | 09 March, 2017 | 3:09 pm

Gaining confidence

Written by By Corinna Petry

Above: Checking mill certs on cut-to-length plate.

Carbon steel and specialty metal companies say stable conditions and high-end products will feed an uptick in demand

March 2017 - You have to give them credit. Over the past decade or so, integrated and minimill steel producers have been able to streamline or adjust operations at low-performing assets—they’re still doing so—and focus mightily on what their customers actually want.

This flexibility and troubleshooting has helped them to contain losses even when the bottom drops out of a particular sector (think energy), and equipped them with the means to respond much more rapidly than in seasons past.

As 2017 whizzes ahead at the rapidity to which we’ve become accustomed, managers of mature assets and young guns with new micromills are each ready and able to meet the evolving needs of end users from automakers to construction contractors, and from machinery builders to those laying pipelines.

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Roll grinding.

At U.S. Steel Corp., Pittsburgh, “Revitalizing our assets is a priority for 2017,” President and CEO Mario Longhi told investors during a Feb. 1 earnings call.

Investor Relations Manager Dan Lesnak explained that the timeline of upgrades is flexible to give the steelmaker an “ability to move projects backwards and forwards to run the operations in line with our order book and take care of our customers.”

U.S. Steel has permanently shut down some operations, especially tube mills, in order to “streamline our footprint and focus on where our most profitable opportunities are.” The company retains roughly 1 million tons of seamless capacity, of which 400,000 tons are welded tubing. Yet, if demand grows for grade X70 pipe, for example, “we have the ability to supply [hot-rolled sheet for that] and it would be very good product for us,” Lesnak said.

“Our blast furnace capacity is capable of supplying whatever additional alternatives that we’re going to find out there,”  said Longhi, adding that U.S. Steel expects to melt about 5 percent greater volume this year versus 2016.

ArcelorMittal USA Inc., Chicago, reported Feb. 10 that its footprint optimization project at Indiana Harbor Works, East Chicago, is under way. “We idled redundant operations including the No. 1 aluminize line, 84-inch hot strip mill and No. 5 continuous galvanizing line,” CFO Aditya Mittal told investors.

Its mill in Calvert, Alabama, continued to expand its prowess in terms of automotive product offerings and volume. The joint venture with Nippon Sumitomo “has approval on 269 of 368 automotive qualification packages, with 100 or more new qualifications targeted by the end of 2018,” executives said during the earnings call.

Underlying real demand continues to expand and, “due to the absence of a further destocking of inventories in 2017, apparent steel consumption in the U.S. is expected grow 3 to 4 percent above 2016 levels,” Mittal stated.

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Cold rolling sheet is among the occupations of a steelmaking sector prepared to meet the varying requirements of end markets such as automotive, oil and gas and commercial construction.

Ebb and flow

At AK Steel Corp., West Chester, Ohio, CEO Roger Newport cited industry sources who predict a decline in North American automotive production rates of 1 to 3 percent in 2017, “but this comes after the all-time record year of 2016.”

AK Steel rolled out a third-generation steel grade called NanoSteel NXG 1200 and its NexMet high-strength steel product line last year for use in automotive lightweighting applications.

Jaime Vasquez, vice president of finance and CFO, said the company has witnessed some “inventory adjustments being made by several major automotive manufacturers, phasing out of certain passenger car platforms and a planned reduction for steel content onto heavy-duty truck platforms.” 

Customer adjustments in material sourcing are “just a natural ebb and flow of the business,” commented President and COO Kirk Reich.

A richer product mix, including the premium pricing that can be obtained on newer, more specialized or custom grades, should help offset that. “Our volumes are going to be fairly stable, and fairly steady    compared to what they were last year. We’re probably picking up a little bit of market share along the way,” Reich said.

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North American automotive production rates are forecast to slip by 1 to 3 percent this year versus 2016, says AK Steel’s Roger Newport.

Highways and byways

Mark Millett, president and CEO of Steel Dynamics Inc., Fort Wayne, Indiana, is hoping that elected leaders in Washington, D.C., will “execute on a broad-based infrastructure plan.” He forecast additional growth in construction spending, “especially for larger public sector infrastructure projects. We also expect to see improving activity within the energy sector.” 

Although domestic automotive production “may be edging off record levels, we believe total 2017 NAFTA production will grow slightly as Mexico continues to grow production with the current assets in place,” he said.

Like other steel executives, Millett bemoaned the continued overcapacity in long products such as beams and merchant bar while demand for them has consistently lagged that of flat roll. However, new orders for special-bar quality have come in above forecast recently, “most noticeably in the oil patch. We’ve seen the [seamless] tubers and the forges are significantly stronger than we have seen for a very long time. We are even seeing a rebound in Caterpillar off-road” machinery build rates.

Dallas-based Commercial Metals Co. also discussed nonresidential construction activity during a January earnings call. 

“The streets and highways sector showed signs of promise with state-level gas tax and $203 billion of state-level bond ballot items earmarked for infrastructure spending that were passed in November,” remarked Joseph Alvarado, chairman, president and CEO. 

“2017 street and highway construction starts are forecast to be up 5 percent from 2016,” he said, and new federal budgeting legislation should make more funds available for public projects between 2018 and 2020.

Construction at CMC’s micromill in Durant, Oklahoma, is proceeding as planned and will begin producing rebar and merchant bar this autumn, Alvarado said.

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The heavy truck market “will continue to be challenging in numeric terms as it works through a cyclical downturn,” says Tony Thene at Carpenter Technology.

Engines running

Producers of stainless steel, nickel alloys and titanium—including Allegheny Technologies Inc. (ATI), Pittsburgh, and Carpenter Technology Corp., Wyomissing, Pennsylvania—report continued strong demand for grades that perform well under high pressure and extreme heat, especially in aerospace engines and other transportation applications.

“We are into the transition to the next-generation aircraft and jet engines from the legacy models, and ATI is benefiting,” Chairman, President and CEO Rich Harshman told investors Jan. 24.

“Our High Performance Materials and Components segment is well positioned for profitable growth over the next five years, driven primarily by strong and growing demand from commercial aerospace— especially the next-generation platforms.” 

Through 2020, he noted, “the OEM build schedules show five new next-generation airplanes and eight new next-generation engines. The jet engine backlog, according to the latest information available, stands at 22,314 engines.”

ATI also expects activity in the oil and gas market to improve over the next several years. Already, requests for quotes had risen from previous weeks and months. “Some large projects such as pipelines have begun to move forward after being put on hold for the last several years,” Harshman said.

Tony R. Thene, president and CEO for Carpenter Technology, provided a similar positive outlook. “Looking forward we see continued momentum for bookings, coupled with improving market indicators for the back half of 2017. We remain confident that the growth potential of our aerospace and defense engine submarket remains strong given our participation on the new platforms as well as the projected build dates and backlog numbers coming from the engine and aircraft manufacturers.”

Within the larger transportation segment, Thene said he expects the heavy truck market “will continue to be challenging in numeric terms as it works through a cyclical downturn, and North America light vehicle production remains an attractive outlet for Carpenter products given that our solutions help address evolving engine design and performance requirements.”

Given their close monitoring of market fluctuations, advanced capabilities and smoother responsiveness, producers overall are confident of their ability to turn a solid order into a solid profit in 2017. MM

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