Demand, order rates and capacity utilization remain strong for North American mills; inflation has not proved a major headwind

July 2022- As measured by metal producers’ profits, 2021 was a boom year. Firstquarter results were also higher year over year. A host of aluminum and steel producers report that their order books are full, and that demand is expected to continue rising as supply chain obstacles clear up and U.S. infrastructure improvement projects begin launching during the second half.

Alcoa Corp. posted record first-quarter profits and the business remains “strong and steady,” says President and CEO Roy Harvey. The average realized price for aluminum increased 14 percent from the fourth to the first quarter to more than $3,800 per metricton.

The producer expects global demand for primary aluminum to rise 2 percent over last year in spite of a somewhat slower pace due to supply chain interruptions, particularly in automotive, and lower demand from Russia and Eastern Europe.

The company sees the effects of inflation but “it’s not deep. Our order book is very strong. Our customers are asking for everything we can put out there,” Harvey told investors recently.

Kaiser Aluminum reports that aerospace-related value-added revenue may increase by up to 20 percent this year versus 2021, based on strengthening demand for commercial planes, business jet and defense applications. Commercial aerospace is anticipated to recover to 2019 record levels in 2023-24. Automotive-related revenues are expected to rise by at least 10 percent this year. 2022 North American passenger vehicle build rates are projected to improve to 15.2 million units from 13.0 million last year.

      Above, Cleveland-Cliffs’ Northshore iron ore processing plant.

    A cooling bed at a rebar mill.

Century Aluminum President and CEO Jesse Gary told shareholders that demand remains strong “in our core markets in the U.S. and Europe and inventories have been drawn down to post-financial crisis lows. We continue to see inflationary pressure in energy markets and other key raw materials [but we are] well situated to benefit from historically high aluminum prices.”

Arconic forecasts a mixed outlook for 2022 revenues, based on end market conditions. For ground transportation, its outlook is flat due to semiconductor supply challenges driving ongoing automaker shutdowns. Yet increased global demand and a favorable pricing environment bode well for industrial products and nonresidential construction. The company boosted its expectations for growth in aerospace activity due to higher production among airframe builders.

Customers are waiting for “anything we produce today,” Dev Ahuja, CFO for Novelis, told shareholders of the parent company, Hindalco Industries. “So the market is already constrained and will continue to be constrained for the next many years, actually. “There is not enough capacity despite [internal] expansion. So we do not expect any kind of uncertainty around the ability to sell this capacity. [There] are not going to be many new sources of supply in 2023.”

SOLID TRENDS

Steel Dynamics Inc. President and CEO Mark Millett finds the nonresidential construction market to be rock solid, “especially in areas that support online retail, represented by construction of distribution and warehouse facilities, along with data centers, schools and health care [facilities],” he told shareholders.

SDI’s CFO, Theresa Wagler, says that order activity for such downstream building products as steel joists and decking “remains incredibly strong. Our steel fabrication business continues to operate with a record backlog considering both forward product pricing and volumes, which currently extends through the first quarter of 2023.”

Steel consumption within the automotive sector is expected to grow, “with production through 2024 returning to over 17 million units, supported by an extreme lack of automotive dealer inventory and strong pent-up demand,” Millett notes.

At Insteel Industries Inc.—which manufactures steel wire reinforcing products for concrete construction applications—recordhigh steel prices have yet to impact demand, says CFO Mark Carano. “In fact, leading indicators and forecasts for nonresidential construction reflect a robust outlook for the balance of the calendar year and beyond, with growth continuing in already strong segments like warehouse and distribution, and now recovering in previously weaker segments like office and leisure.”

H.O. Woltz III, Insteel’s chairman, president and CEO, says the stimulative impact of the federal infrastructure spending package should “become evident in our markets late in 2022 and will ramp up over the next four years, creating significant momentum.”

Anecdotally, he adds, “there’s never been a time when our customer base has enjoyed the strength of backlogs that they enjoy today. Many customers are booked through 2022 and are quoting availability in 2023, which is unprecedented.”

SPECIALTY PRODUCTS AIRBORNE

Universal Stainless & Alloy Products Inc. Chairman, President and CEO Dennis Oates says that the recovery in aerospace demand has continued. “Our year-over-year sales to aerospace customers were up 35 percent from the first quarter of 2021.” Demand from the sector “drove the exceptional growth in our backlog.”

Oates explains that the “recovery in aerospace demand is being driven by increasing airplane build rates and expanding order books at airplane manufacturers,” which is “supported by the accelerating comeback in air traffic, as COVID-related travel restrictions have eased in many parts of the world.”

       Concrete reinforcing bar, beams, channels, hollow structural sections and other products will be needed for federally funded infrastructure projects.

ATI’s first-quarter 2022 sales grew 20 percent above the same 2021 period, “driven by the ongoing expansion in our commercial aerospace market as well as growth in other key end markets,” Chairman, President and CEO Robert S. Wetherbee says. “Looking ahead, we expect continued growth in our most significant end markets,” noting that the geopolitical volatility in Europe and Asia “creates both challenges and long-term opportunities for ATI.”

MADE IN THE U.S.

U.S. Steel Corp. President and CEO David Burritt emphasized to shareholders recently that the hybrid model of integrated and EAF steel production is serving the company very well.

“Within our North American Flat-Rolled segment, we offer our customers steel that is mined, melted and made in the USA,” he says. “Our low-cost iron ore is a truly sustainable competitive advantage, the importance of which has been amplified by the recent disruptions in the global metallic supply chain.”

The company is expanding its capabilities to produce non-grain-oriented electrical steel. “OEMs have us strongly convinced that the thinner and wider NGO electrical steels that will be made at [subsidiary] Big River Steel will capture demand because we know where they are headed. Customers are already reserving their time on the new NGO line, construction of which is on time and on budget for a third-quarter 2023 startup.

      Aluminum ingot is among the raw materials in high demand among rolling mills and extruders

We’re also expanding our presence in value-added Galvalume, again informed by our customers, to meet the growing demand expected in the construction, appliance and automotive sectors. This investment is also on budget and on time for a second quarter 2024 startup,” Burritt says.

Kevin Lewis, U.S. Steel’s vice president for investor relations, noted that the company has realized an 80 percent capacity utilization rate at its blast furnaces. “Based on our latest demand signals— entry rates into our order book—we think our integrated footprint and our minimill footprint will continue to be highly utilized.”

Cleveland-Cliffs Chairman, President and CEO Lourenco Goncalves also touted domestic production of iron, steel and finished steel products as a competitive advantage. For example, he says, “there are seven real producers of flat-rolled steel in the United States, and we are the only one among the seven that does not rely on imported pig iron or slabs.”

New flat-rolled minimills ramping up capacity “will only exacerbate their current issues with sourcing prime scrap and metallics, which will just further widen the competitive advantage we have,” Goncalves claims.

As for his outlook, “underlying demand is good, customer inventories have begun to decline and issues related to sourcing labor or critical materials are showing signs of easing. The panic buying of 2021 is behind us, but we still have a lot of hungry mouths to feed, and that will only increase as the semiconductor shortages [for automotive applications] get progressively better.”

RAMPING UP

At Nucor Corp., President and CEO Leon Topalian cites “very strong overall demand despite continued supply constraints, production challenges in automotive and [a] relatively tepid response for energy products despite strong pricing for hydrocarbons” as trends his team is watching.

Rex Query, executive vice president for Nucor’s Sheet & Tubular Products division, predicts that mill utilization rates will increase substantially. The mills will be able to “ramp up for the remainder of the year. Bookings have been very strong. Our backlog has increased.”

Allen Behr, executive vice president for Plate & Structural Products, says, “the story on plates [is] very similar. Fabricators, the construction business [and] heavy equipment [builders] remain noteworthy in their strength.”

The demand drivers in nonresidential construction—“in the digital space, digital warehousing—has been sensational,” Behr says. “To say it’s resilient would be an understatement. Those jobs are being let daily. Our backlogs [have hit] record highs. We’re closing the order book because we don’t want to go out as far as some of our customers would ask us to. “Tons are flowing,” he says. “You’re going to see a significant increase in utilization rates across both our sheet and plate groups.”

GIVE-AND-TAKE

ORDERS UP FOR COPPER ALLOYS

An Ohio-based manufacturer of copper alloys in bars, tubes, plates and shapes to distributors, OEMs and machining companies is experiencing a steady surge in orders during 2022.

“With respect to the OEM segment, we are doing very well in all of the related industries. Oil and gas is doing well, having picked up significantly,” says Martin Little, executive vice president of sales and marketing for Concast Metal Products Co. “Since COVID, we have seen a significant upswing in our order book.

“Construction equipment builders’ demand for bearings and bushings made from continuous cast alloy has grown. Aircraft and aerospace are now booming. Our lead-free continuous cast copper alloys have picked up momentum in the past couple of years; our water handling is another segment that is strong,” says Little.

The volume seen in Concast’s order book through the end of May rose by at least 15 percent from 2021 and rose roughly 50 percent over the same five months of 2020. The company’s production rate is up by more than 30 percent, says Little. “We have the capacity to handle the business. However, we don’t want to overbuild for unrealistic prospects,” he notes.

What has helped Concast to recover so significantly is that its leadership team pays close attention to its sourcing. “We buy a lot of remelt stock; most of the products we make are from remelt. We also buy pure copper and alloying elements for our chemistries.

“Purchasing is as important to our business as the selling side. Our COO does that himself,” Little explains. “We have a group of long-standing supply partners. These are give-and-take relationships, we help one another. That’s proven to be a very effective strategy, because we have not experienced any supply interruptions.”

On the selling side, he says, “as illustrated by the fact we are having a good year, it’s clear that customers understand the necessity of paying more, due to [ballooning costs for] raw material and freight, packaging, etc. Our customers see it in their own operations, so they fully understand the necessity for price changes.”

Little says Concast has emphasized technology investments during the past two to three years. “We spent a great deal of time and money on quality control to ensure Concast provides the highest quality products in the industry. In addition to quality improvements, these changes have also enhanced production capabilities.” MM