When "new domestic" automakers go shopping for steel, they don't have to look far. With a weak dollar, high ocean freight rates and higher prices abroad, there is plenty of incentive to source steel—even exotic specialty and high-strength steels—from domestic suppliers.
"I'd be very surprised if the new Americans are not working aggressively with domestic mills to increase the level of supply," said Mark Parr, an equity analyst at KeyBanc Capital Markets Inc., Cleveland.
North American mills have the know-how to produce advanced high-strength steels and ultra-high-strength steels, he said. It might just be a question of capacity—but there could be more steel available now than in the past, especially with the double whammy of weakness at Detroit's Big Three and the lengthy strike at American Axle & Manufacturing Holdings Inc., Detroit. "I don't know whether its a structural phenomenon or more of a short-term opportunity," Parr said. "In any event, I think any steel the domestic guys can produce is capable of finding a pretty happy home."
The new domestics might even prefer domestic mills, especially taking into account exchange rate risks as well as the uncertainty of delivery times that come with sourcing offshore, John Tumazos, analyst at John Tumazos Very Independent Research LLC, Holmdel, N.J., said. "I think if it were a 50-50 toss-up, most of the new domestics would give the nod to a local supplier. It is also politically better in the American market to have more American content, which is one of the reasons they are here to begin with."
Both mini-mills and traditional integrated mills can provide most grades of automotive steels, Tumazos said, but "if you are going to use electric furnaces it is critical that the scrap be super, super clean or you have to use virgin metallics like pig iron."
The ThyssenKrupp AG mill under construction in Alabama has a stainless but not a carbon melt shop, he said, which means it will depend on slab input to supply automotive steels. For unique, proprietary or exotic grades, the company likely would have to bring slabs from Germany or produce them at its operations in Brazil.
"The simplest position is that of ArcelorMittal (USA Inc. in Chicago), U.S. Steel (Corp. in Pittsburgh) and AK Steel (Corp. in West Chester, Ohio), which have good-sized integrated operations," Tumazos said. "The electric furnace companies and the slab-importing companies can make the demanding grades, but they have to coordinate with their raw material suppliers and take the extra effort."
If automakers want steelmakers to go the extra mile for more exotic grades of steel, however, then they ought to be prepared to pay for it—especially with spot prices hovering at record levels, he said. "If they want to get every grade, every bell and whistle, they can't be beating the steel supplier up on price."
The new domestics still bring a lot of supplies from overseas to assembly plants in the United States, according to Richard Schultz, project consultant at Ducker Worldwide LLC, Troy, Mich. Last year, the new domestics brought in 18 million aluminum wheels, 930,000 engines and 4.5 million transmissions, he said, but that doesn't mean they're also importing steel. "I have a feeling that companies like Toyota (Motor Corp.), Nissan (Motor Co. Ltd.) and Honda (Motor Co. Ltd.) buy most of their steels right here."
There might be occasions where automakers have to source advanced and ultra-high-strength steels from Europe, Schultz said, but General Motors Corp., Detroit, is just as likely to do so as the new domestics. "These are just very temporary things where all of a sudden someone switches all their bumper beams to martensitic steel. You're dealing with materials that only a few people make. They can make more, but you can't just turn on a dime."
While there may be temporary dislocations, the North American supply base generally is able to handle increased production even of higher grades of steel—such as martensitic steels—because volumes are limited, he said. "We're not talking about a lot of tonnage, and we're talking about relatively few parts. This is not going to be used for the hood of a car or some other semi-structural part."
An ultra-high-strength steel, such a martensitic steel, is more likely to be used in bumper beams or in slender but critical applications, such as the B-pillar (which supports the space between the doors and is critical in withstanding side impacts) or the A-pillar (which supports the area around the windshield).
And U.S. mills will probably be making more high-strength steels as traditional carbon steels are replaced by ultra-high-strength steels, such as hot-stamped boron steel and martensitic steels, as well as advanced high-strength steels such as dual-phase 590, 780 and transformation-induced plasticity (TRIP) steels, Schultz said.
"It's a way to get the weight out, but these materials aren't cheap and they're not easy to work with," he said. Martensitic steels, for example, can't be stamped like traditional steels and are often roll formed into slender parts.
"If we're going to get that improvement in fuel economy, we've got to do something," he said, noting that aluminum, magnesium and other materials also are part of the solution.