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With or without Uncle Sam, the market looks bullet-proof


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

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