ASA MATERIALS MARKET DIGESTNovember, 2014 • Jim Olsztynski, Editor • Published monthly by the American Supply Association • www.asa.net • [email protected] • 630.467.0000
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This report is published as a member service of the American Supply Association. Its contents are solely for informational purposes, and any use thereof or reliance thereon is
at the sole and independent discretion and responsibility of the reader.
While the information contained in this report is believed to be accurate as of the date of publication, ASA and the author disclaim any and all warranties, express or implied,
Reshoring Makes Increasingly More SenseThe Reshoring Initiative is a non-profit, industry-led effort to bring manufacturing jobs back to the U.S. According to ThomasNet.com, there is a host of reasons why manufacturing overseas makes ever less sense, especially with rising labor costs in China.
• Shipping Costs: They can be substantial.
• Inventory: Businesses are being forced to buy larger lots to get the best China price.
• Cash Flow: Lower-volume businesses are being forced to pay for parts before they’re shipped.
• Travel: Frequent travel to and from Asia adds up and can chip away at savings.
• Currency Fluctuations: Last year’s invoice of $100,000 could be $140,000, today.
• Appropriate Management Skills: Many companies underestimate the people, processes and technology required to manage an outsourcing contract.
• Design Changes: Language barriers make it difficult for design changes to be understood and implemented.
• Quality Problems: Substitution of lower grade or different materials than specified is a common problem.
• Legal Liabilities: Offshore vendors often refuse to participate in product warrantees or guarantees.
• Cost of Transition: It is easy to overlook the time and effort required to successfully offshore production. It takes from three months to a year to complete the transition to an offshore vendor.
• Poor Communication: Time zone differences and language barriers can make communication complex and burdensome.
• Intellectual Property: Foreign companies, particularly Chinese firms, are notorious for infringing on IP rights without legal recourse for American companies.
Carbon SteelA deluge of steel imports flooded into the U.S. in September, according to the American Iron & Steel Institute (AISI). Imported steel increased 5.2 percent over August and a whopping 38.0 percent over totals from September, 2013. The biggest gains were in cold-rolled sheet, which jumped 37.3 percent over August and more than double the amount imported in September of last year. Analysts say stagnant economies around the globe are compelling foreign producers to tap the comparatively robust American market. Russian and Chinese firms were the biggest overseas suppliers.
U.S. service center steel shipments in September, 2014, increased by 8.3 percent from September, 2013, according to the Metals Service Center Institute (MSCI). Steel product inventories increased 16.4 percent from September a year ago. At the current shipping rate, this represents 2.6 months of supply in inventory.
World crude steel production dipped a bit in September for the 65 countries reporting to the World Steel Association (WSA). The
decline amounted to minus 0.1 percent compared to September, 2013, matching the decline in U.S. output.
China’s exports of steel products hit a new record in September, rising 4.5 percent from the last high posted in May. China’s steel exports, for the first nine months of the year, are up 39.0 percent. Weak economic conditions in China are spurring its steel companies to sell more overseas, even at steeply discounted prices, analysts say.
Stainless Steel & AlloysStainless steel shipments by U.S. service centers jumped 4.0 percent in September from the previous month and 14.1 percent from September, 2013, according to MSCI. Although encouraging, some distributors think it reflects extremely poor conditions in 2013 more than a strengthening of demand. Stainless steel inventories by U.S. service centers were up 2.2 percent from the prior month and 18.1 percent compared with a year before. They had an estimated 3.1 months’ worth of supply on hand.
Stainless pricing remained mostly flat in October across nickel-bearing austenitic grades, according to American Metal Market (AMM). Meanwhile, U.K.-based MEPS predicts that stainless steel demand and pricing is likely to remain flat throughout the fourth quarter. Numerous attempts by major stainless producers to raise base prices and/or surcharges have mostly failed this year. MEPS continues to predict an upward trend in prices, as 2015 turns the corner, mainly due to a perceived nickel production deficit.
LME nickel prices dropped from more than $17,000 a ton to under $15,000 between late-September and late-October. As October headed to a close, nickel was selling for the lowest prices since early-March and down almost a third since their high in May,
though the price got back to $15,815 on the last day of the month. Nickel surged upward in September, following reports that the Philippines was likely to enact an export ban similar to that imposed by Indonesia, which likely would have led to a global shortage of nickel. However, the Philippines government announced that no such ban would be enacted in the foreseeable future, and nickel prices fell, accordingly. Waning demand has led to an all-time high of nickel stocks in LME warehouses.
Global nickel consumption has increased this year, even as production tailed off, according to the International Nickel Study Group (INSG). World primary nickel usage is on track to increase 7.9 percent in 2014, while production is down 0.5 percent. Stock buildups in 2012 and 2013 have cushioned the shortfall, but Switzerland’s Glencore plc predicts that nickel supply will move into deficit by early 2015, “with annual deficits expected to be substantial in the medium term.” Glencore, Citigroup and other key analysts have said it looks likely that Indonesia will continue its export ban, which will put pressure on global supplies.
Tubular ProductsCarbon pipe and tube shipments were up 2.9 percent in September over August and 10.1 percent higher than September, 2013, according to data from MSCI. Through nine months of the year, shipments were up 2.9 percent in the U.S. Service center inventories were up 1.7 percent over August, amounting to 2.8 months’ supply, but 3.9 percent below the level of a year earlier.
OCTG prices rose for the sixth month in a row and hit a 25-month high in October, according to Pipe Logix LLC. Distributor selling prices averaged $1,785 per short ton in October, up from $1,771 in September and the highest level since
September, 2012. Seamless OCTG rose to $1,913 per ton, on average, in October, and ERW averaged $1,657 per ton, also both representing 25-month highs.
Various domestic OCTG producers reported increased shipments this year, thanks to the favorable trade verdict against numerous imports. TMK IPSCO said its pipe shipments rose 4.9 percent in the third quarter and 6.1 percent through the first three quarters of the year, including a whopping 19.7 percent gain in seamless OCTG deliveries.
Four South Korean OCTG producers have appealed their U.S. penalties to the U.S. Court of International Trade (CIT). Husteel Co. Ltd., Hyundai Hysco Co. Ltd., Nexteel Co. Ltd. and SeAH Steel Corp. are challenging the U.S. Commerce Department’s International Trade Administration to levy anti-dumping duties ranging from 9.89 percent to 15.75 percent on OCTG shipments to the U.S. Other South Korean producers are said to be poised to make similar appeals.
U.S. Steel has threatened unspecified “additional recourse” against South Korea, whose OCTG imports shot up around 31.0 percent in October from the prior month. USS and other domestic producers complain that the duties imposed against South Korean firms are not high enough.
In mid-October, a flock of U.S. line pipe producers filed a trade complaint against welded API-grade line pipe from South Korea and Turkey. Encouraged by the success of the OCTG complaint, petitioners are seeking duties ranging up to 221.0 percent against South Korean producers and 16.0 percent against Turkish firms. Petitioners include American Cast Iron Pipe Co., Energex Tube, Maverick Tube, Northwest Pipe, Stupp Corp., Tex-Tube, TMK IPSCO,
U.S. Pipe & Tube ImportsLanded duty-paid value (in $1,000s)
and Welspun Tubular, along with the United Steelworkers union. The U.S. Commerce Department’s International Trade Commission (ITC) is scheduled to make a preliminary injury determination by December first.
The trade action put upward pressure on line pipe imports as exporters appear to be raising prices to lower potential duties. According to AMM, imported ERW X42 line pipe has risen to $840 per ton from $820 previously. Meantime, import volumes of line pipe have decreased, down 22.8 percent in September from August, according to preliminary data from the U.S. Commerce Department.
Domestic line pipe prices dropped in September for the first time since last February, reported Pipe Logix. This came after prices hit a new high for the year in August at an average $1,998 per short ton, dropping to $1,993 in September. That price is still up 3.4 percent from the low in February. Imported line pipe also dropped in September, by 0.6 percent to an average $1,281 per ton, according to Pipe Logix.
The decline is expected to be short-lived as U.S. and Canadian energy drilling activity continues at a robust pace. As of October 24th, U.S. drillers had 189 more rigs in service than on the same date in 2013, while Canadian rigs increased by 22 for the same period. Some pipeline companies were reportedly having difficulty sourcing large-diameter line pipe. Declining oil prices may put a halt to much drilling activity in the near future.
Copper
Copper prices spent most of October not much above $3.00/lb. There was a minor surge to $3.11, late in the month, due to reports that China, the world’s largest copper consumer, would take steps to stimulate its sluggish economy. This came after copper hit a seven-month low on October 16th.
The gains are not expected to hold. The Paris-based bank Natixis SA has predicted copper prices to average $2.87 per pound in 2015, down 7.7 percent from this year’s anticipated average of $3.11. It expects a surplus of copper to drive down the market next year.
Global refined copper jumped to a 77,000-ton surplus in July after six consecutive months of deficits, according to preliminary data from the International Copper Study Group (ICSG). In the first seven months of 2014, world usage is estimated to have increased by around 12.0 percent compared with the same period of 2013. World mine production is estimated to have increased by around 3.0 percent in the first seven months of 2014. World refined production is estimated to have increased by around 7.0 percent in the same period.
Chile’s copper agency, Cochilco, forecast a 6.1 percent increase in mined copper in 2015 to 20.4 million tons, although lowering its growth estimate slightly for the rest of this year, down to 19.22 million tons compared with its June prediction of 19.38 million tons. Cochilco left its 2014 copper price forecast unchanged at an average of $3.12 per pound ($6,878 per ton) and predicted a downward trend for 2015 at $3 per pound ($6,614 per ton) “as a result of increasing levels of market surpluses.”
Going against that trend, The Wall Street Journal reported on October 27th that a single buyer has gobbled up more than half the copper held in LME warehouses, giving it control over a crucial source of supply. The buyer was identified as Red Kite Group, a London hedge-fund manager that focuses on metals trading. The apparent motive was a wager that global copper supplies will tighten and prices will correspondingly shoot up.
ScrapFerrous scrap prices were down $20-55 a pound in October, depending on grades and parts of the country, reports from AMM determined. The trend looks to continue in November, as an AMM survey found nearly 63.0 percent of scrap buyers surveyed predicting that prices could fall between $10 and $20 per gross ton in November from October levels, while just over 30.0 percent believed the drop could be more than $20 per ton. Ample supply, dwindling exports and export prices and a strong dollar were among the factors putting downward pressure on the market. Depressed iron ore prices also are contributing downward pressure, say analysts.
Through August, ferrous scrap exports dropped 18.7 percent
compared to the first eight months of 2013, according to data from
the U.S. Commerce Department.
Despite the declines, scrap industry observers say 2014 has been a good year by historical norms. While 19.6 percent of
respondents to an AMM survey rated the year as average, nearly
48.0 percent rated 2014 as above average. About a third of those
surveyed rated the year as below average.
Stainless scrap prices were sagging throughout October, owing
to weak demand for material. Stainless scrap broker/processor
buying prices fell on October 27th to a range of $1,860 to $1,905 per
gross ton, dropping from $1,950 to $1,995 the previous week for
Type 316 solids. Type 304 solids fell to $1,255 to $1,300 per ton from
$1,275 to $1,320, and Type 304 turnings to $1,075 to $1,120 per ton
from $1,100 to $1,140.
Copper scrap prices also were reported tumbling throughout October. Ample supply and moribund demand continued to play
their familiar tune.
Plastics
Producer prices for both plastic pipe and plastic pipe fittings and unions both dropped in September. The Producer Price Index
for plastic pipe dropped a full 1.0 percent from August, while the
PPI for plastic pipe fittings and unions showed a 0.4 percent decline.
Compared to a year ago, the PPI for plastic pipe was up 1.1 percent
in September and plastic pipe fittings were 2.1 percent higher.
HDPE resins were becoming tough to source in October, but nonetheless, most experts consulted by Plastics Technology
magazine believed prices would remain stable for the remainder of
the year. PVC resin prices rose 2¢/lb. in September, but the forecast
was for flat-to-lower pricing for PVC in October, with the potential
for further relief this month and into December.
News of NoteSeptember sales of ASA’s industrial PVF distributors blasted an average 14.5 percent ahead of sales in September, 2013. For the calendar year through nine months, industrial PVF sales were 4.3 percent higher than the same period last year. On a trailing 12-month basis, ASA’s PVF distributors’ sales were up an average of 4.2 percent, according to the association’s most recent Monthly Pulse Report. ASA’s PVF distributor inventories were 6.5 percent higher in September compared to the same month of 2013.
Business expansion accelerated for industrial distributors in September, according to the October Economic Indicator Report (EIR) from the Industrial Supply Association (ISA). The ISA Distributor Index increased from 65.1 in August to 76.8 in September, while the ISA Manufacturer Index improved from 59.0 in August to 60.5 in September. For each index, a reading above 50.0 percent indicates expansion, while a reading below 50.0 percent indicates contraction. The Indexes have been above 50.0 percent since December, 2012.
Business conditions also continue to improve at architecture firms, as billings ticked upward again in September. The AIA’s Architecture Billings Index (ABI) score rose to 55.2 for the month, one of the highest post-recession readings, thus far (any score over 50 indicates growth). Architecture firm billings increased at firms in all regions of the country for the fourth consecutive month in September, with the strongest growth reported by firms located in the Midwest and South regions.
About Jim OlsztynskiFor over 35 years, Jim Olsztynski has covered the plumbing-heating-cooling-piping and industrial and mechanical pipe-valves-fittings (PHCP-PVF) industry as an award-winning journalist and editor for a variety of industry publications. He is an accomplished author having published several Essentials courses for ASA University and is soon to publish his own book, titled: Bumps on the Road to Riches: How to Avoid Big Mistakes that Kill Small Businesses. Jim has also made numerous appearances and presentations about the industry and its rich history before live audiences as well as on television.
