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Winter, the sequel, hits metals hard for a second time

Feb 28, 2014 | 08:00 PM | AMM staff

Tags  Outokumpu Stainless USA, Port of Mobile, Port of Charleston, Port of South Louisiana, Norfolk Southern Corp., CSX Corp., Brian D. Robbins, Midwest Materials Universal Metals LLC

Winter may be--allegedly--giving way to spring in the next few weeks, but what has been one of the severest seasons on record east of the Rockies has caused problems and discomfort for the metals sector.

Arctic temperatures and heavy snowfall played havoc with work schedules, rail and truck transportation, the flow of scrap into yards and even levels of industrial energy consumption. In some regions of the country, several workdays were lost in both December and January, shortening market periods and complicating deal negotiations and deliveries.

Storms and deep cold fronts crisscrossed the country from December to February, crippling the upper Midwest with blizzards and sub-zero temperatures, beating the Northeast with ice, snow and cold, and snarling the South with an unseasonable near-catastrophe, even by the standards of the worst past mid-winter periods.

One of the biggest storms hit in late January, causing metal production outages, port closures and a reported overall reduction in trading activity across the South and Midwest.

Energy curtailments forced some producers, such as Steel Dynamics Inc., to scale back or alter their production schedules as electricity supply became strained and priority was given to residential customers.

Scrap suppliers and consumers said the flow of material had been impacted by the weather, while one steel mill in the Northeast reportedly ceased accepting new scrap deliveries.

Road and rail traffic were hampered by the icy conditions, which caused extensive delays. Some mills, like Outokumpu Stainless USA LLC’s Calvert, Ala., melt shop, temporarily suspended operations Jan. 29 following advice from local officials to stay off the roadways. Closures also were in effect at the Port of Mobile, the Port of Charleston and the Port of South Louisiana; the Port of New Orleans ran on an adjusted operating schedule; and barge traffic was impacted by closures and delays along the Mississippi, Illinois and Arkansas rivers.

“Getting freight moved in general is next to impossible. A lot of trucking firms are experiencing weather-related issues and lack of drivers. Trucking is scarce and they are starting to raise rates just because they can,” one Ohio recycler said, noting that quotes for trucking services were 15- to 20-percent higher.

The cold weather forced scrapyard workers to use flame torches to thaw frozen rail switches and remove snow from covered tracks, while states on the southern East Coast experienced rail car delays. “Both Norfolk Southern (Corp.) and CSX (Corp.) are a disaster in the Southeast with an inability to deliver cars,” a recycler there said.

“The issue is car supply. We heard that CSX was experiencing a shortage of gondolas. They are having car supply issues. CSX tells us they are having trouble getting cars out of storage and we should expect lower flows than requested,” an East Coast shredder said.

A third East Coast recycler said he ordered 15 cars from Norfolk, Va.-based Norfolk Southern but had been assigned only eight. “I asked about ordering a few additional cars and was told there’s no chance due to poor car availability caused by weather and demand.”

Brian D. Robbins, president and chief executive officer of Perry, Ohio, service center Midwest Materials Inc., said inventory he built in December would be sold off during the first quarter “in spite of the polar vortex,” which temporarily stymied operations at service centers, mills and consumers in the first full shipping week of January. “Our mantra to our carriers is if the weather is bad, don’t go and we’ll deal with our customers,” he said. “Safety has to come first for your employees or for a common carrier, whether it rises to a case of force majeure or not.”

“We had severe issues Jan. 6, 7 and 8,” Mike Sawyer, president and co-owner of Toledo, Ohio-based Universal Metals LLC, said. “We couldn’t get anything from the mills and we couldn’t get anything to our customers.”

“We called customers to say we’ll only ship (their steel) if we have two trucks, for safety purposes, that can drive in tandem,” said Mike Lerman, president of South Bend, Ind.-based Steel Warehouse Co.

Customers were understanding. “The saving grace is that the majority of the country has been going through this, so when you explain to your customer (that an order will be delayed), they understand it,” said Gary Ziebell, president of Bridgeview, Ill.-based Zeeco Metals Inc.

“All this will result in fewer shipping days, and you don’t make those days up,” Lisa Goldenberg, president of Fort Washington, Pa.-based Delaware Steel Co., said.

Product quality also can suffer with extreme weather.

“I just had galvanized coils show up that looked like icebergs,” Ziebell said.

“We just had three loads of galvanized and it was awful,” Sawyer said.

“The problem is you don’t want to claim the steel (file a quality claim with the supplier and send the material back) because you need the steel. You cannot replace it right away,” Goldenberg said.

The weather even had an indirect effect on production. Some aluminum producers were monitoring gas power consumption as the cold snaps saw companies with interruptible power or gas contracts put on notice of possible supply cuts.

Several companies with interruptible service contracts told AMM they had been advised about potential penalties should they use more gas or electricity than they had contracted for. Such interruptible contracts provide discounted rates but also allow supplies to be curtailed should gas become tight or power grids become stretched, market sources said. In extreme weather, residential consumers get priority to industrial users, they added.

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