Leaping off a cliff might sound like fun to the adventurous, hang-gliding type, but for businesses trying to stay airborne in the current economic environment the feeling is more akin to losing an engine in mid-flight.
For metal players trying to avoid a financial crash and burn, the only option is to land with minimal damage—not an easy feat as low industry demand stiffens competition among suppliers fighting for the few orders available.
The tool steel products market, for one, "has fallen off a cliff," according to Dave Murray, senior vice president of Latrobe Specialty Steel Distribution, Marlborough, Mass. "When most of our customers are laying people off or working short hours, you can't expect increased steel orders. Most of our customers are working down inventory. Many say they are at the lowest level they've had in many years, and they don't want to bring in extra material because they are afraid it will just sit there."
The company began to see orders diminish during the third week of November, which Murray attributed to demand declines in the housing, automotive and heavy industry sectors. That lower demand rate has since been sustained.
Competition for orders has increased, Murray said. "Every order being quoted is going to eight or nine suppliers rather than three or four, as in the past, looking for the best price; and suppliers are looking for the crumbs." It has almost come to the point where customers "can name the price. It's not good. We are in a period of distress, but we hope we have hit bottom."
Not all sectors of the industry are feeling the same degree of pain, though.
Sunbelt-Turret Steel Inc., a Charlotte, N.C.-based multi-branch distributor of carbon and alloy bar stock, primarily sells to shops that "do specialized machinings, blank shafts for machinery, just-in-time manufacturing and machine replacement parts," Jerry Webb, general manager, said. "We concentrate on large bars and we are not seeing the same suffering as (suppliers of) smaller diameters used in automotive applications."
Sunbelt's products end up in machinery for paper and sugar mills, mining equipment and any large machinery requiring shafts, gears and clutches. The company also supplies shafts for wind power turbines—"that's probably the hottest industry now," Webb said—and large-diameter bars for road-paving equipment. "We do foresee picking up additional business due to the fact that (President) Obama wants to rebuild roads and bridges," he said.
In the meantime, competition for orders is tough, Webb said. "People are still playing with pricing, and there is no firm stability. They are going up and down on a daily basis."
The availability of some tool steels could become a challenge by the third quarter due to U.S. production curtailments and trade rules affecting foreign producers. "We could end up short" when order rates for mills and distributors rebound, Webb warned.