Talk that the U.S. Army might cut billions of dollars in
funding for heavy military ground vehicles to help finance its
Future Combat Systems (FCS) modernization effort has raised
some eyebrows in the steel plate industry.
But even if the cuts take place, producers contend the
overall impact on their order books would be minimal and
largely offset by strong demand elsewhere.
The shift in funding would dramatically reduce spending for
such military vehicles as Abrams tanks, M2 Bradley infantry
fighting vehicles and Stryker wheeled combat vehicles. The
cuts, which would be part of the Army's six-year budget plan
for fiscal 2010 through 2015, must be approved by Pentagon
leaders before being incorporated into a Defense budget
proposal for 2010.
FCS, the so-called system of systems, will connect a family
of manned and unmanned aerial and ground vehicles through a
single, joint multi-functional network, even though a lot of
the technology involved is still in its infancy stage. The aim
of FCS, which carries a price tag of $160 billion, is to
improve the overall situational awareness and effectiveness of
U.S. armed forces.
ArcelorMittal SA, which has plate mills in Conshohocken and
Coatesville, Pa., and Burns Harbor and Gary, Ind., is by far
the largest supplier of armored plate to the U.S. armed forces,
accounting for about 90 percent of the armed forces' supply,
according to steel industry sources. The Luxembourg-based
steelmaker supplies armored plate for the Abrams, M2 Bradleys
and Strykers, according to a company spokeswoman, who declined
to say how much of its steel goes into each vehicle.
The company doesn't anticipate significant changes that
would affect its steel plate production for armored military
vehicles, the spokeswoman said. "However, if there were a
change in the military's needs for steel plate, ArcelorMittal
believes that the volumes could be absorbed by other commercial
markets for steel plate."
ArcelorMittal signaled its confidence in the steel plate
market just last year, when the company announced plans in
December to increase its output of quenched and tempered plate
by 50,000 tons across its various U.S. mills (AMM,
Dec. 5). Steel is quenched and tempered in order to increase
its strength and hardness, making it ideal not only for
military use but also for commercial use.
At the time, Shelby Pixley, ArcelorMittal Plate USA's chief
executive officer, said armor plate demand from the U.S.
defense industry was so strong that it was cutting into the
company's ability to supply commercial clients. "In response to
this, we are investing in our facilities to meet the high
military and commercial demand for this product," he said.
Thomas Danjczek, president of the Washington-based Steel
Manufacturers Association, also downplayed the negative impact
any U.S. Army procurement changes would have on the industry.
"Even if demand from the U.S. Army were to weaken for whatever
reason, demand for steel plate from other sectors, such as
energy, would likely remain strong," he said.
"We have not seen a reduction in steel plate demand. It is
the bright spot of the market right now. Plate producers are
enjoying a very strong market, in large part due to demand from
energy sectors such as oil and wind."
One steel manufacturing industry source noted that
consolidation among steel plate manufacturers several years ago
during a lull in business orders led to ArcelorMittal being
such a dominant supplier.
No matter what the Pentagon decides, the source doesn't see
much impact on the broader steel industry. "U.S. steel
production in 2008 is still running at a rate of roughly 106
million to 107 million tons, similar to 2007, and steel plate
for the defense sector accounts for maybe only 2 percent of the
entire market," he said. ALANA VANNAHME