Everything has its ups and downs, and the market for consumables—fluxing materials such as limestone, electrodes used in electric furnace steel manufacturing and refractory materials—is no different. But the highs and lows of the ride can at times be enough to give some sectors whiplash.
Timothy Byrne, president and chief executive officer of U.S. Lime & Minerals Inc., Dallas, watched his company's lime and limestone revenue soar during the first nine months of 2008. What he saw as the third quarter drew to a close, however, was more troubling. While demand for lime from steel customers was strong through the first three quarters, the company witnessed a sharp reduction in demand in October due to worsening economic conditions.
"With reduced demand during these challenging economic times, and our increasing energy costs, we must continue to raise our prices to pass along these costs and improve our gross profit margins," Byrne said. The problem that U.S. Lime & Minerals faces, like other manufacturers and providers of steelmaking consumables, is that steel industry consumers aren't buying much. Steelmakers have drastically reduced production since late September, thus scaling back their need for consumables.
"It's a bit of a tough market right now," said David Jardini, president of C/G Electrodes LLC, St. Marys, Pa., which provides electrodes to electric furnace and ladle metallurgy furnace operations. "There is a lot of capacity coming off line. Production is down because demand for steel has come off so much."
Rapid growth and development of the electric furnace steelmaking route put a squeeze on the availability of needle coke used to manufacture electrodes and drove prices for that product higher, Jardini said. Needle coke prices increased at least fivefold during the past three years, shooting up to around $2,500 per ton from approximately $450. That prompted electrode manufacturers to increase prices. "That's a difficult situation," he said. "We were running on almost no needle coke inventory. But now, with production coming off, availability of needle coke is better."
But demand for steel hasn't improved. Some market observers predicted steel production would be reduced by as much as 50 percent by January, based on overall demand weakness, with few signs of a dramatic turnaround in the early months of 2009.
"It's one of those things that goes hand-in-hand with the other," one mill buyer source said. "When you're not buying scrap, you don't need electrodes to help in the melt. It's pretty much that simple."
Philip Johnson, senior vice president of marketing and sales at Pittsburgh-based Carmeuse Lime & Stone Inc., said lime prices were basically flat from 1995 to 2002 and as a result mining investment was restricted during that period. He now looks at the current economic downturn as a temporary interruption in demand and says efforts to expand lime capacity now under way will pay off when demand returns to more normal levels in the future.
"Right now the lime industry is reeling," he said. "We've been hit like steel has and we are struggling to deal with the downturn. We need volume (in the form of orders from steelmakers) to be able to ramp up production."
Guenter Karhut, chairman and chief executive officer of ANH Refractories Co., Moon Township, Pa., said prices for refractory materials used to line steelmaking furnaces increased about 250 percent from July 2000 to mid-2008. At a fall conference, he said his company saw no shortages of refractory raw material supplies and likely would add resources in 2010 as prices were expected to begin to decline. SCOTT ROBERTSON