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issue: August 2007 APPLIANCE Magazine

Metals and Metal Service Centers
Structuring a Steel Strategy


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by David Simpson, Contributing Editor

Appliance companies get supplier help in an environment of higher metals costs.

Shown is aluminum coil in Alcoa’s Warrick, IN, U.S., location. The company observes that the market for aluminum has softened somewhat from the strong demand experienced in 2005–2006. Customers are managing their inventories as closely as possible and are demanding shorter lead times with highly reliable on-time delivery performance. Alcoa’s North American Rolled Products reports it can effectively meet these demands.

The appliance industry has a long history of designing out costs—sometimes saving just a few cents (or equivalent) per appliance, sometimes more. This experience is coming in handy as the industry strives to offset high-priced metals and other materials. In sheet metal use, manufacturers continue to explore thinner gauges or less-costly metal grades.

“We have found it difficult to pass on higher material cost to our customers,” says Thomas Pospeshil, purchaser at range maker Peerless Premier Appliance Co. (Belleville, IL, U.S.). “The higher cost of steel products has forced us to find other means to save the small margins there are in appliances.”

By working with its steel suppliers and improving efficiencies, Peerless Premier has been able to weather the higher materials costs. “We believe using service centers gives us more flexibility in finding solutions to the problems associated with steel pricing,” Pospeshil says. “We do use direct suppliers for specialty steels. Also, we have long-standing relationships with our suppliers. We believe these types of relationships are vital in allowing a company such as ours to survive the pressure that material pricing places on our products.”

In the view of metals service center Atlas Steel Products Co. (Twinsburg, OH, U.S.), customers are continuing to explore any and all ways to trim costs for their products. “We have worked with a number of customers in helping them analyze the use of lesser grades of stainless steels to combat the hyperescalating surcharge environment,” notes president Lawrence (Bo) Burr. “Likewise, with carbon customers, we are looking with them at potential savings through gauge and/or coating weight reductions.”

From a steel supplier perspective, “Customers are always looking to reduce the gauge or grade of steel components or convert costly cast aluminum parts to a steel stamping,” says Adam Warrington, spokesman for Mittal Steel USA (Chicago). “ArcelorMittal has a research department with applications engineers dedicated to work with their appliance customers. We can perform FEA (finite-element analysis) to determine the structural performance or formability of a certain design in steel. This gives the customer an opportunity to determine whether a gauge reduction is feasible from both the design performance and the manufacturability perspectives. We also support our customers by taking part in competitive teardowns. These help benchmark the steel used in similar designs of other appliance manufacturers that do not source from us.”

Alcoa North American Rolled Products (Lancaster, PA, U.S.) emphasizes its connection to strategic partners such as American Trim (Lima, OH, U.S.). “These partners offer unique solutions to our appliance customers with regard to surface characteristics, fit, form, and function,” points out J. Michael Murphy, sales and marketing manager, Industrial Products. “Our supply partners provide valuable support from unique design capabilities to delivering finished parts with JIT delivery.”

This six-stand hot-mill area is under construction in a new 1.5-million-ton facility near Columbus, MS, U.S.. The SeverCorr operation will combine features of a minimill and an integrated mill. Partners on the 1400-acre campus will provide value-added services.

Stainless Quandary

The stainless-steel look continues to be a popular premium in consumer kitchens. Unfortunately, manufacturers pay high prices for the commonly used Type 304 stainless steel. Surcharges from North American Stainless (Ghent, KY, U.S.) and AK Steel Corp. (Middletown, OH, U.S.) for June 2007 delivery were around US$2.20/lb. The bulk of these surcharges are for nickel, at about $2.00/lb. In contrast, AK Steel surcharges for this stainless type were just over 16 cents/lb four years before.

One U.S. stainless-steel supplier reports appliance industry customers are actively into prototype development using non-nickel-
bearing Types 430, 434, and 436, and also low-nickel Type 201. OEMs are exploring corrosion resistance and formability. Surcharges for the non-nickel-bearing ferritic types are currently between about 20 and 50 cents/lb, and Type 201 is around $1.09/lb.

The International Stainless Steel Forum (ISSF; Brussels) does not foresee a drop in stainless-steel fabricating industry demand. However, its forecast counts on a shift to ferritics, providing technically equivalent solutions with lower or more-stable prices. To improve stainless steel’s image, ISSF has launched an advertising campaign with the Nickel Institute (Toronto) designed to inform the public that stainless steel is one of the world’s most recycled materials.

A common consumer complaint about stainless steel is its tendency to show fingerprints. A way to address that concern is to add a transparent coating. The Silver Ice coating from ThyssenKrupp Nirosta, a subsidiary of ThyssenKrupp Stainless AG (Duisburg, Germany), reportedly makes fingerprints virtually invisible. The finish is aimed at applications such as household and kitchen equipment. Panicos Papaiacovou of ThyssenKrupp Nirosta was responsible for development. “The finish is scratch resistant, chemically resistant, formable, and virtually invisible, so the elegant appearance of the stainless steel is preserved,” he says.

The easy-to-clean coating was developed in a four-year effort with Henkel KGaA (Düsseldorf, Germany). Industrial implementation took place this year in the ThyssenKrupp Acciai Speciali Terni (Italy) plant. During manufacture, a colorless, transparent, 2- to 3-μm coating is applied to the stainless-steel surface. To allow adequate protection against the rigors of kitchen use, the coating is cured not by heat but by ultraviolet radiation. The intense radiation and the components in the coating result in high basic hardness. The use of nanoparticles of extremely hard material increases scratch resistance.

Given high nickel prices, Mittal Steel USA’s Warrington says, “There has been a push to develop alternatives to stainless with the same look that can meet performance requirements given for a particular application. ArcelorMittal has participated in the development of faux stainless alternatives in conjunction with certain external processors. These products use a substrate of very smooth hot-dip galvanized steel that is then coated with a thin film of plastic, having a brushed stainless pattern.”

Nonstick Oven Interiors?

Many OEMs use prefinished steels in washing machines, dryers, refrigerators, dishwashers, and other appliance wraparounds, tops, doors, and side panels. An advantage for appliance producers is that prefinished metals eliminate the need for in-plant finishing. In the past, prefinished steels were considered less suitable for high-temperature applications, and porcelain enamel (P/E)–coated steel has been the dominant material used in oven and grill interiors. P/E is applied on formed parts in-house or by a contract operation.

“There are, however, some practical drawbacks to enamel,” says Iain Stringer, commercial manager, Corus Firsteel Coated Strip (Walsall, UK). “It’s brittle, so it can chip if you drop, bend, or impact it. Color choice is also limited to blacks and grays, whereas prefinished steel systems offer greater color flexibility and attractive metallic finishes. The enameling process, too, is energy intensive and cleanup can be difficult. A number of European appliance companies have been looking into alternatives.”

A possible alternative developed by Corus is Motiva ARTM coil-coated nonstick sheet. The technology is an outgrowth of the company’s long-time production of nonstick coil for oven bakeware. The Motiva finish is applied in a single pass on an established line with two rollers. The organic base coat is ceramic-loaded to provide a level of abrasion resistance. A top coat of PTFE (polytetrafluoroethylene) is added for its nonstick properties. The finish can be used in applications in the 200° to 260°C (392° to 500°F) range. It is applied to an aluminized grade of steel, so there will be corrosion resistance if the finish is scratched. Cost to the OEM may be higher than for a P/E-finished part, but using the coil-coated sheet means the appliance company could eliminate its porcelain enameling operation.

“We’ve supplied a number of OEMs with this product for oven sides and grill trays, and are talking to others,” says Stringer. “Companies are testing the product and in one case an OEM has gone to production. The aesthetics, with a metallic finish, can be quite striking. We are also talking to European OEMs about using this colored prefinished product on hob tops and other oven components.”

M&A Effect

The names of metals suppliers have been changing. That’s hardly surprising since big mergers of metals companies have been in the news. Most prominently, Mittal Steel (Rotterdam, The Netherlands) and Arcelor (Luxembourg) merged, for the first time to create a company with steel-making capacity of more than 100 million tons a year. Corus Group (London) was acquired by Tata (Jamshedpur, India). Wheeling-Pittsburgh Corp. (Wheeling, WV, U.S.) went to Esmark (Chicago Heights, IL, U.S.). Freeport-McMoRan Copper & Gold Inc. (New Orleans) bought Phelps Dodge Corp. (Phoenix). Russian producer Norilsk Nickel (Moscow) has bid $6 billion for fellow producer LionOre (Toronto). Aluminum company Alcoa Inc. (New York City) last May put in a $27 billion bid for Alcan Inc. (Montreal). There are others. At the same time, some steel producers are maintaining or implementing strategic alliances.

One noticeable effect of having fewer, stronger steel producers is better pricing discipline. In the past, it was common for mills to push output to maintain sales when demand and prices fell. There now seems to be more willingness to lower production when demand is down, and keep prices from plummeting. For instance, U.S. Steel Corp. (Pittsburgh) last fall reported it would adjust the duration of blast furnace outages to balance supply with anticipated customer demand.

“Yes, there is definitely more pricing discipline by steel producers,” confirms Gary Hamity, president of metals service center Mapes and Sprowl Steel Ltd. (Elk Grove Village, IL, U.S.). “The steel producers have finally decided to match supply with demand. If demand drops, they will reduce production either by shutting down equipment, doing maintenance, or cutting back production hours. Due to more-flexible labor agreements and the consolidation of steel producers worldwide, there have been structural changes that have made this type of discipline a reality rather than just steel mill rhetoric. That should be a positive for all steel users because it makes pricing less volatile, with fewer spikes up and down.”

Hamity adds that this new pricing discipline is global, not just in the United States. “In the case of flat rolled steel, the major product used by appliance manufacturers, 65% of the production is controlled by three producers in the U.S.,” he says. “We expect demand and prices to remain firm for the balance of 2007.”

Luvata manufactures copper wire in an up-cast process. Copper ranks third in world metals consumption, behind iron and aluminum. Common appliance applications include electrical wires and HVAC tubes. Copper mine operators trimmed production between 2002 and 2003 to reduce excess stock. By late 2004, inventories were reportedly at all-time lows. Producers made efforts to bring mines back during 2005, but shortages persisted through 2006. Production and consumption are now said to be more in balance. But prices in June 2007 were still $3.40/lb, compared with $3.66/lb a year earlier, and around 75 cents/lb in 2002. Photo courtesy Luvata U.K. Ltd. (Old Isleworth, UK).

Improving Steel Facilities

Despite continuing industry consolidation, a steel producer’s success depends largely on its individual operations, not on the company’s overall size. With this in mind, many metals processors are upgrading and sometimes expanding facilities while their profits are up. North American Stainless, a subsidiary of Acerinox SA (Madrid), is committing some $320 million for expansion of its Ghent, KY, facility. Nucor Corp. (Charlotte, NC, U.S.) invested $150 million to construct a fourth sheet-steel galvanizing facility located at the company’s existing sheet mill site in Decatur, AL, U.S.

SeverCorr, a new entry in the U.S. market, is taking advantage of current steelmaking and processing technology in a facility near Columbus, MS, U.S. Building construction at the 1400-acre site began in May 2006. It will include an advanced melt shop, thin slab caster, six-stand hot mill, cold mill, and a hot-dip galvanize/galvaneal line, with 1.5-million-ton annual capacity. Target markets include auto and appliance industries in the southern U.S. states and Mexico. This is reported to be the first new U.S. steel production operation in over a decade and is expected to be in full production by September 2007.

“We are marrying minimill technology with the capability of integrated mills,” explains Tom Marchak, general manager, sales. “We are working with leading equipment manufacturers like Germany’s SMS Demag to provide the most advanced equipment set in the industry. Our ultraefficient flow will eliminate the areas where other mills have struggled with surface defects. There will be better yields, better shape, and better dimensional tolerances. In our galvanize/galvaneal area, we have a 155-ft-high tower that permits the cooling that is needed to avoid surface imperfections.”

Marchak says the operation will be built for efficiency and will ultimately employ about 450 workers—a far cry from the 2600–2800 workers that might be needed at a comparably sized integrated mill. “Yet we’ve devoted half of our campus to house partner companies in order to offer more services,” Marchak points out. “Our partners will do value-added operations such as slitting, leveling, and blanking. An appliance producer can either pay SeverCorr separately for the steel and the partner for the processing, or opt to buy the complete package through these on-campus partners. Much of the rest of our steel will go through service centers and processors.”

Another new southeastern U.S. steel mill has been approved by ThyssenKrupp AG. Emphasizing the international nature of the steel industry, the €3.1 billion (approx. US$4.2 billion) operation in Mount Vernon, AL, U.S., will be supplied with low-cost slabs from a new steel mill in Brazil. The €3 billion ($4 billion) facility near Rio de Janeiro is scheduled to start production in 2009 with a capacity of 5 million tons of slabs per year. The U.S. plant, described as the most advanced of its kind in North America, is scheduled to start operation in 2010. It is to be a combined plant for flat carbon steel and stainless steel, and will employ some 2700 people.

The central element of the new plant will be a jointly used hot-strip mill with a capacity of up to 5.2 million metric tons per year. It will process 3 million tons of slabs from the new Brazil steel mill, and produce 4.1 million metric tons of flat carbon steel end products per year. Cold-rolling and hot-dip coating capacities will also be installed for premium carbon steel end products.

For a mature, commodity-based business, the metals industry is undergoing a surprising amount of change. Given this, and the currently high level of metals pricing, doesn’t it make sense for appliance companies to work with their metals suppliers to explore the latest options? To fail to do so could be shortsighted.

 

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