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Can HSS up volume in a downsized, distressed market?

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A struggling North American steel industry is looking for customers to buy its products in almost any shape or form. High-strength steels (HSS) are recognized as competitive with aluminum and plastics, but with the automotive industry running on four flat tires, steelmakers are finding it more and more difficult to move even an innovative, environmentally friendly product to customers who, while they might want the steel, really have no need for it.

"There was a lot of talk last year about a drastic drop in the amount of mild steels being used in cars and light trucks, but you haven't heard much of that lately," Charles Bradford, a steel industry analyst at Affiliated Research Group LLC, said. "That (drop in mild steel usage) was to be offset by more use of high-strength steel. But there are a lot of problems now with (automakers). No one is really focused on the automotive market except for trying to find ways to not get stuck with debt."

Analysts agree that opportunities exist for steel in high-strength applications in automotive markets. John Tumazos of Very Independent Research, Holmdel, N.J., said that about 85 percent of aluminum in a car is in castings, wheels, engine blocks and other components. In some upscale models, there also is aluminum in hoods, trunk lids and deck lids.

"You can consider that high-strength steel could take about 5 percent of the aluminum content," he said. "You have about 300 pounds of aluminum in a car, so high-strength stands to replace about 15 pounds of aluminum per vehicle. If you figure about 12 million cars in the automotive market, you're looking at about 180 million pounds of aluminum, or about 90,000 tons. That would be the opportunity for high-strength steel as far as replacing aluminum."

Bradford said there is a lot of pressure on automakers to reduce weight, so there are a lot of good reasons for them to use high-strength steel. "But no one is selling any cars right now, so it's kind of tough to focus on design. Everyone realizes cars will be smaller, but whether people buy them or not is another story," he said.

So, too, is the issue of what automakers need. With auto designs moving toward lighter and smaller vehicles, steelmakers are under increasing scrutiny to develop more high-strength steels for more and varied applications.

"It's tough when you don't know what kind of cars you're going to be making," Bradford said. "Congress is making cars now. The last time that happened was in the Carter administration. Back then, it was said that everyone would have to have small cars, and it immediately followed with predictions that 5,000 people would die immediately because small cars hit bigger things. People said that when everyone had a small car that would go away. People forgot that cars still hit trucks, bridges and trees. They do not just hit other small cars. High-strength steel makes sense. How (steelmakers) do it—heat treating or high-strength low-alloy—is really the question. That's the difficult part. Aluminum has good uses in a lot of cars, but high-strength steel makes sense because it's cheaper than aluminum, even though aluminum is cheaper these days than it has been."

Tumazos agreed that cost issues are favoring high-strength steels over aluminum or plastics, a trend that should continue. The main concern on the steel side should be maintaining, then adding to, its share of vehicle mass. "The most important thing is preventing aluminum's growth from (its current) levels," he said. "You want to preserve the extent to which steel is replacing aluminum and then upgrade from that point, preferably at a higher price."

But the weak economics that have driven down material prices also have forced steelmakers and aluminum manufacturers to cut back their research budgets. In the case of steel, that means potentially less research into high-strength steels.

"I would think that both steel and aluminum, because of the economic situation, have cut back their research budgets," Tumazos said. "Historically, the chemical and plastics industries and aluminum have spent a great deal more than steel."

He remembered an encounter almost a decade ago with Alain Belda, former Alcoa Inc. chairman, where the two discussed Alcoa's purchase of Reynolds Metals Co. and Alumax Inc., only to learn that between the three companies they were losing $400 million a year to automotive design to Detroit.

"The global recession clearly would have an impact on research spending by chemicals and plastics companies as well as by steel," Tumazos said. "But steel may have a little more of an advantage now because while those companies were spending years ago, steel was going through some tough times and did not devote as much money to research."

Analyst Mark Liinamaa of Morgan Stanley Research, New York, said most of the major North American integrated steel companies find themselves in a battle for market share in high-strength steels. But more than a battle, the use of high-strength steels calls for steelmakers to work as closely with their customers in the automotive sector as they can, he said.

"AK (Steel Corp.) has done a lot of research and U.S. Steel (Corp.) has, too," Liinamaa said. "ArcelorMittal (SA) acquired Dofasco (Inc.) and a big plus for them was Dofasco's involvement in auto steel, so they are all in the market. What they are trying to do with high-strength steel is maintain or grow market share."

Liinamaa said steelmakers must work hand-in-hand with their automotive customers. "Small changes in the structure of the steel can make for big changes in the presses the auto stampers use," he said. "That's why they have to work so closely together. I don't really know if (steelmakers) have many alternative markets for high strength if their automotive customers go down. I'm sure there are some alternative markets, but there is no doubt auto is the main market. It would be difficult for steelmakers to replace automotive customers if that market went down. That would be a huge loss for steel. That's why building these relationships is so important." SCOTT ROBERTSON


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