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issue: January 2003 APPLIANCE Magazine

2003 Materials Forecast: Exceptions to the Rule
2003 Materials Forecast: Constrained Steels

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by David Simpson, Contributing Editor

In March of 2003, U.S. President George W. Bush approved steel tariffs of 8-30 percent designed to limit imports and to help the beleaguered U.S. steel industry.

Slow growth is tending to keep material's availability up and prices down, but there are significant exceptions.

It should be an ideal commodities scenario for some appliance companies. While economies around the world have been sputtering, in the U.S. and some other countries consumers have been avidly scooping up major appliances, air-conditioners, digital cameras, and other consumer goods. Because of lackluster world economies, you would think that the materials used in these "hot" appliances should be readily available and relatively low priced. In fact, that isn't necessarily so.

One big reason is that, despite talk of a global economy, there are national and regional differences in commodity supply. For instance, despite worldwide overcapacity, steel supply and pricing in the U.S. have been affected by tariffs imposed early in 2002, and by the temporary shutdown of some domestic supply. Another factor is sometimes higher oil and natural gas prices. Primary glass suppliers, for instance, are adding surcharges tied to a natural gas price index. And, not only are oil and natural gas used in processing and transportation, but they are used as constituents in some plastics.


Basic oxygen furnaces at AK Steel's Middletown Works (OH, U.S.) turn molten iron into molten steel.

While looking at the bigger picture is helpful, the reader has to remember that the raw materials appearing in appliances often pass through one or more intermediaries. These may turn copper into pipes, steel into coated coils, various feed stocks into plastic resin for refrigerator liners, or raw glass into pyrolytic oven door glass. Other companies are primarily involved in distribution. To give a better picture of how appliance companies are being affected, this report includes input from companies that directly supply the appliance industry.

Constrained Steels

In March of 2003, U.S. President George W. Bush approved steel tariffs of 8-30 percent designed to limit imports and to help the beleaguered U.S. steel industry. Following the announcement of tariffs, imports dropped significantly - from 3.4 million metric tons in February to 1.8 million metric tons in May. At the same time, prices in the U.S. jumped 40-70 percent on key products. Not all the price increases can be tied to tariffs, though. Another major factor was the December 2001 LTV Corporation (Cleveland, OH, U.S.) bankruptcy. This shuttered its mills, taking considerable production off the market.

The situation is far different going into 2003. While the tariffs remain, the Administration has granted a number of exemptions. Steel imports are up: between June and September they averaged 3-million metric tons. In the U.S., International Steel Group has restarted LTV's shuttered steelmaking operations, adding some 6-million tons of flat-rolled steel. In addition, the previously closed mills of Trico Steel, Acme Steel, and Qualitech Steel are all being brought back.

"We saw price spikes in 2002, and a shrinkage of availability, due to the closure of steel making facilities and the steel import duties," points out Lawrence J. Burr, president of steel service center Atlas Steel Products Co. (Twinsburg, OH, U.S.). "Availability for some steel products got worse, and lead times shot up. But there is now more availability, lead times have shrunk, and there is some easing of prices. We don't know if this will be sustained or is a year-end phenomenon, and higher prices will return. I think our customers' expectations are for an improvement in prices."

Mr. Burr adds that the 30-percent tariffs will go down to 24 percent on March 30. "Besides this, there have been a tremendous number of exclusions allowed. However, many of these are for slab steel, which U.S. mills process themselves."

"In general, I believe that supply in 2003 will be fine for hot-rolled, cold-rolled, and coated," predicts Charles Belanger, marketing manager for Ispat Inland Inc. (Chicago, IL, U.S.). "Despite tariffs, imports are available. Given that business investment is down, and the recovery is weak, we don't see any squeeze on price and availability. Some customers, however, who have not seen price increases for a while due to contracts, will be getting increases when they renew."

Despite the relative softness in the market, The Wall Street Journal reports that the order books for both Nucor Corporation (Mt. Pleasant, SC, U.S.) and U.S. Steel Corporation (Pittsburgh, PA, U.S.) are full for the first quarter. But, while U.S. Steel is expected to have its first profitable year since 1999, the picture is not so rosy for all U.S. producers. Speculation is that one or two major producers may go under in the near future. If this happens, and mills shut down, as they did in the case of LTV, there could be further market disruption.

Alan McCoy, vice president at AK Steel Corporation (Middleton, OH, U.S.) observes, "Generally, we look to new home sales as the barometer of the appliance markets. The figures for 2002 should be up somewhat from 2001. For the future, there is a concern about consumer confidence, and whether high spending on big ticket items will borrow demand from the future. But we are relatively optimistic. There should be no issues with supply from our standpoint.

"We are seeing increased use of stainless steel and want to see a lot more," he adds. "There is a lag in U.S. stainless use compared to that in Europe and Asia. One development that might help is that we've found that stainless steel coated with our clear epoxy antimicrobial coating masks fingerprints. For cold-rolled carbon steels used in appliances, we are developing a pigmented antimicrobial coating."

Outside the U.S., some foreign steel makers are reporting expectations of higher prices, even as U.S. prices have declined. In Japan, prices may be affected by the expected March merger of NKK Corporation and Kawasaki Steel Corporation. The resulting JFE Steel Corporation would be the second largest Japanese producer, behind Nippon Steel Corporation.

Read the complete 2003 Materials Forecasts:

Constrained Steels
Popular Glass
Copper Supplies
Plastics: Monomer Impact
Refrigeration Systems: Keeping Cool


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