The tinplate segment of the U.S. steel market is comparatively small—shipments of just 3 million tons annually in an industry that generally manufactures more than 100 million tons of steel per year.
It's a difficult product to make, too, given strict customer requirements for flatness and finish, needs that essentially take mini-mills—some 70 percent of total U.S. production capacity—out of the game. Therein lie opportunities for the limited number of producers, according to steel industry analysts. Only three producers are significant manufacturers of tinplate in the United States, and while that small number would seem to open the door for others to get into the market, such moves are unlikely at best.
"It's very difficult to make tinplate," said Chuck Bradford, industry analyst at Affiliated Research Group, New York. "Flatness is very important to customers, and the uniformity of the coating is important, too. Not very many (steelmakers) can make it to the specifications the customers need. You have to have degassing capabilities to be able to get what (tinplate customers) want. That shuts out a lot of the mini-mills right there. The mini-mills can't make this stuff."
The market thus is limited to ArcelorMittal USA, Chicago, and U.S. Steel Corp., Pittsburgh, which manufacture tinplate and other tin mill products; and USS-Posco Industries Inc., Pittsburg, Calif., a joint venture of U.S. Steel and Posco Ltd., Seoul, South Korea, and Ohio Coatings Co., Yorkville, Ohio, a subsidiary of Severstal North America Inc., Dearborn, Mich., which apply tin coating to substrate provided by their parent companies.
Those companies, like others in the North American steel industry, were hit hard by price volatility for most products beginning in late 2008, when the global economic downturn began to develop. The price for hot-rolled sheet, for example, peaked at around $1,100 per ton in July 2008, only to plummet to $380 per ton by May 2009.
Tin products pricing, however, held its own. Producers generally need a margin of $300 to $400 per ton on tinplate vs. hot rolled to make tinplate profitable. They were able to get those margins despite hot-rolled price volatility thanks to contract pricing negotiated a year earlier, and on the fact that demand remained stable.
"In the first half of the year tin products were the most stable part of the steel business," John Tumazos, analyst at Very Independent Research LLC, Holmdel, N.J., said. "Food and aerosol products and lubricant products are the ones that were least tied to inventory fluctuations."
Luke Folta, analyst at Longbow Research, Independence, Ohio, offered a similar view, but noted that little information related to annual tin product sales is available from producers. "They generally make their sales available to us over a five-year period, so there is not a lot of visibility there," he said. "It's a market that has not received a lot of focus (in 2009), but it has been more stable than most of the other steel markets."
Statistics from the American Iron and Steel Institute (AISI), Washington, indicate how stable the market has been: Total U.S. tin product shipments have been around 2.8 million tons annually since 2005, with tinplate accounting for about 2 million tons.
With few players in the market, pricing generally is not a big issue, Bradford said. "The big battle they face is in quality. Rejection rates from can makers, I am told, are usually pretty high. When you get into Europe and Japan, they have good enough quality that they are making (steel) beverage cans, which is something we do not do here. But there has not been a new hot-strip mill built in the U.S. in 35 years, and you can't make this stuff on a mini-mill. You get too much nitrogen in the electric furnace process and you don't have the flexibility in the steel that you do when it has been degassed. It's hard to make."
Tumazos said the ability to deliver quality and service is likely what separates the competitors. He used ArcelorMittal Weirton of Weirton, W.Va., as one example of the issues that U.S. competitors face. "When Weirton Steel was an independent company, they took great pride in their tin mill," he said. "I'm sure the people who work there still are proud of what they can do, but I wonder if it gets the same focus as part of a 150-million-ton company. U.S. Steel takes great pride in its tinplate, too. It's a solid market for them."
Thus, customers most likely make their decisions on where to source supply based more on quality and service than on price, Tumazos said. In commodity products like hot rolled, price most often is the driver. "I would think that, given the structure of the (tin products) market, customers are very concerned with quality. There is a great opportunity for (suppliers) to compete based on who provides the most consistent quality and service."