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issue: January 2005 APPLIANCE Magazine

Materials Forecast 2005
Moving Metals


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by David Simpson, Contributing Editor

Perhaps nowhere more than in steel has the ferment in commodities been evident.

A raw stainless steel coil awaits a variety of processes resulting in either a 2B, polished, or rolled on surface at ThyssenKrupp Mexinox’s San Luis Potosi plant in Mexico.

Ferrous Ferment

Prices have varied widely throughout 2004, with the cold-rolled steel commonly used in the appliance industry reaching highs last summer in the U.S. Current steel prices are painful to makers of appliances. Even major appliance OEMs that have received some price protection through long-term contracts may be faced with painful numbers when it is time to renew.

Charles Belanger, marketing strategy development at steel producer Ispat Inland Inc. (Chicago, IL, U.S.), says that precipitously climbing prices in 2004 stemmed from the increase in demand in China. “Because of this, input costs in the form of scrap, ore, coke, and energy have skyrocketed,” he notes. “In addition, worldwide availability for those products and finished steel products have been constrained by the increase in demand from China. Spot market prices for hot-roll [steel] have gone from $350 in January 2004 to $650 in August 2004; cold-roll prices have gone from $420 to $750, and galvanized prices from $445 to $805.”

Further, he points out that due to low imports resulting from the weaker dollar coupled with demand in China, there were some periods in 2004 when availability was an issue. But, Mr. Belanger adds, “The recent run ups in imports should alleviate availability issues in 2005, though the first four months of the year are typically strongest and global demand remains strong, so there is some risk to my forecast.”

Steel prices experienced a significant jump during 2004. Here, an automated guided vehicle delivers a plastic-wrapped coil of flat-rolled steel to the automated storage and recovery system at I/N Tek, one of Ispat Inland Inc.’s joint ventures with Nippon Steel Corporation of Japan. The New Carlisle, IN, U.S. facility supplies the appliance and automotive industries.

The Good News Is...

The good news, he continues, is that the worst is probably over for those steel users that have been riding the spot price climbs in 2004. “However, further incremental price increases over current levels are very possible in 2005. For those who avoided the run up due to annual contracts, a monstrous sticker shock is in play as they negotiate new supply agreements,” warns Mr. Belanger.

“In the appliance industry, steel buyers who have contracts expiring and will be renewing steel supply contracts in 2005 will experience significant price increases reflecting the current pricing environment,” adds Ian Hamilton, spokesman for Dofasco Inc. (Hamilton, Ontario, Canada). “Contract pricing is expected to have a significant increase—double digit—over the low 2004 contract price levels.”

Mr. Hamilton says Dofasco is expecting an increase in demand for steel in North America of about 2 percent over the high levels of 2004. “At the same time, we anticipate supply will improve in North America, and spot prices will remain near historically high levels,” he adds. “This is driven to a large extent by historically high raw material input costs for iron ore, coal, scrap, and energy.”

Lawrence “Bo” Burr, president of service center Atlas Steel Products Company (Twinsburg, OH, U.S.) notes: “We expect steel’s availability to be improving in 2005 following the difficult year we all experienced in the appliance industry in 2004. Without question, last year was one during which steel processors and distributors had to muster all their creativity to keep steel moving to our customers.”

Mr. Burr adds that until the mergers that occurred in the steel industry in 2004 are complete, it will be difficult to know what will happen with steel-making capacity. “From our perspective, we don’t see much capacity going away,” he says. “As consolidation continues, the mills may become more disciplined about not running facilities merely to produce tons. Availability should match demand, but there won’t be much excess steel produced. That means pricing won’t slide much. Of course, we cannot make predictions about the surcharge situation. Raw materials are still in short supply. A question we all wonder about is whether steel prices will prompt appliance companies to give strong consideration to non-steel products, or will oil prices continue to push up prices for those non-steel products.”

Gary Hamity, president of Mapes & Sprowl Steel Ltd. (Elk Grove Village, IL, U.S.) says that in the appliance industry, the availability of cold-rolled and coated steels over the last year has varied some from mill to mill. His company specializes in supplying enameling steel and recently purchased distributor and processor JIT Terminal Inc. in Chattanooga, TN, U.S. “Overall, availability was reasonable if the purchaser had an historical buying pattern from a particular mill,” Mr. Hamity says. “Certainly prices went up significantly throughout the year, both base prices and surcharges. Contract prices were hit with fuel surcharges, but did not experience quite as dramatic a rise in base price that the spot market did. In the spot market, it was ‘first come, first served,’ and the price would be at the current market base price, along with the prevailing surcharge.”

Mr. Hamity says Mapes & Sprowl expects availability continuing to be tight and pricing continuing to be high in most flat-rolled products. “There might be an occasional slip due to global conditions and raw material availability, but we believe any easing of price will be short-lived and more than offset by increases,” he explains. “We expect this to be the situation for at least the first half of the year and more likely to remain throughout 2005.”

Neil Novich, CEO of steel processor and distributor Ryerson Tull, Inc. (Chicago, IL, U.S.) anticipates carbon steel supply and demand will be in reasonable balance in 2005. “Pricing will be firm, but not at the peak 2004 numbers. I expect surcharges to be relatively steady,” he explains. “For stainless steel, I expect a much tighter supply situation. Pricing will be firm with some upward pressure. One reason is that, because of consolidation, there are fewer suppliers.” He offers the merger of U.S. producers Allegheny Ludlum Technologies and J&L Specialty Steel as one example.

“Also, while ordering from offshore is an option, it is not generally very customer sensitive,” Mr. Novich adds. “The supply chain is frequently too long and complex for a material that has such critical surface finish requirements. Generally, imports on stainless are less of an option than on carbon.”

Industry consolidation is also expected to affect steel costs. In late October, Ispat International N.V. made headlines when it announced the acquisition of LNM Holdings N.V. Following completion of the transaction, the company will be renamed Mittal Steel Company N.V. Simultaneously, Ispat and International Steel Group Inc. (ISG) announced that they will merge under the Mittal name, forming what some claim is the largest steel company in the world.

According to Mr. Hamity of Mapes & Sprowl, this will especially impact the industry in 2005. “There is even the potential for more upward pressure as the impact of the formation of Mittal Steel hits the marketplace,” he explains. “With fewer players at the mill level and those that are left demonstrating pricing discipline, the old paradigm of very volatile availability and pricing in the steel industry may be gone for good. We also believe there will be more consolidations in the next year.”

As manufacturers fight material cost increases, surcharges, and shortages, it is more important than ever to explore alternative materials for such products as stainless steel. American Nickeloid (Peru, IL, U.S.) has introduced Alloy Plus™, a highly corrosion-resistant steel, as an alternative to stainless steel. The new material is available in satin finish with fingerprint-resistant coating, and the company can work with users to match various stainless steel finishes and tints. Alloy Plus is available in a variety of tempers and, according to American Nickeloid, offers excellent formability.

Moving Metals

Prices for metals other than sheet steel have also been moving up. Copper, widely used in heat exchangers, piping, and wires, recently reached $1.37 a pound, compared to the previous $0.92 a pound a year. Aluminum, another important metal for appliances, has hovered around $0.89 a pound, nearly $0.20 higher than a year before. Other metals, including lead, tin, and zinc, have also shown significant jumps.

Despite the increases, Daniel L. Twarog, president of the North American Die Casting Association (Wheeling, IL, U.S.), sees an adequate supply of aluminum and zinc for die castings. In fact, from his industry’s perspective, there is probably an overcapacity of producers, which tends to keep the supply side high.

What does this mean for die castings? “The basic cost per pound of die castings will probably not rise more than three percent,” Mr. Twarog predicts. “This is despite rises in the raw material and energy prices to make the products. Price pressures from around the world have not allowed the cost of die cast products to rise for several years.”

He adds that as production shifts around the world, there will also continue to be a shifting of die casting production. Also, the less-complex, high-volume products will be sourced outside North America. “The advantages of staying with U.S.-made die castings lie in the ability to customize alloys, optimize component designs, and quickly revise tooling,” Mr. Twarog says. “Newer alloys and process procedures in aluminum have allowed much thinner walled applications for die castings.”

Powder metallurgy (P/M) parts are also affected by higher materials costs. Peter Johnson, consultant and managing editor, Metal Powder Industries Federation (Princeton, NJ, U.S.), particularly mentions copper and stainless steel powders. Steel scrap, used in making powder for iron parts, has experienced a large increase as well. Despite this, he reports that North American growth in P/M parts is in the range of 5 to 7 percent in 2004, and perhaps even higher in 2005. “One reason is that since P/M parts are net shape, they can still be cost saving alternatives to other parts that may need machining or that generate scrap,” Mr. Johnson explains.

Materials Forecast 2005

 

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