Analysts don't anticipate major ramifications for the steel market if the U.S. Army shifts billions of funding dollars out of heavy military ground vehicle programs, although a lot of things aren't yet known about how such an initiative could unfold.
There is still a lot of negotiating taking place at the government level and it is far from decided how money will be divvied up between existing and Future Combat Systems (FCS) ground vehicles in coming years, according to Dean Lockwood, weapons systems analyst at Newtown, Conn.-based research firm Forecast International Inc.
"What you end up with, regardless of which way the budget goes, is that raw material requirements are basically going to be a wash," Lockwood said. "Whether it is going to FCS or existing programs, you are probably going to end up with the same dollar amount going either way and buying the same amount of raw material."
Farnborough, England-based BAE Systems Plc, for example, builds the M2 Bradley infantry fighting vehicle rumored to be up for funding cuts. However, the company has secured contracts to build some of the new FCS ground vehicles. For the steel armor industry it might not matter if BAE Systems orders supplies for M2 Bradleys or for FCS vehicles, depending on the volumes ordered, he said.
Marcia Price, president and founder of Vector Strategy Inc. in Southern Pines, N.C., said there are a number of dynamics that will drive armor plating demand in coming years in addition to shifts in procurement spending between heavy military and FCS vehicles.
First, a natural downturn is expected in 2010 and 2011 because production of mine-resistant, ambush-protected (MRAP) vehicles will wind down next year. "MRAP production created a huge spike in armor plate demand that you can't really replace or expect to continue to the same extent," Price said. Some natural easing in demand also is anticipated when the United States eventually pulls out of Iraq.
Also important is that an increased emphasis on procuring intelligence, reconnaissance and surveillance equipment could lead to reduced funding for heavy and medium tactical ground vehicles, thereby reducing demand for armor plating, she said. The caveat is that either the new White House administration or a new U.S. Army budget could mean different priorities. If, for example, FCS manned ground vehicles aren't ready in time or M113 armored personnel carriers are retired, the Army might decide to order Abrams tanks, M2 Bradleys and Stryker wheeled combat vehicles after all.
"Overall, I think we are kind of in a period of not knowing, a period of strategy formation from the government, and it is difficult to see how that might net out on the combat side," Price said.
In a study released in August, Vector Strategy projected that between $15 billion and $22 billion of armor plate for use in U.S. military ground vehicles will be procured by the Defense Department between 2009 and 2015. The $22-billion figure is the most likely scenario if Defense Department budgets remain stable; $15 billion looks more probable if budgets are retrenched.
The Army's plan to shift funding into FCS vehicles has generated debate in Washington, given that some FCS technologies won't be at a combat-ready stage for several more years.
The FCS network technologies are designed to "provide future soldiers with the ability to have individual and collective training products at their fingertips. By updating training packages through the network and embedding those onto the hard drive of the soldiers' vehicles, the Army will provide the ability to train anywhere, anytime," the U.S. Army says on its FCS web site. If a gunner of an FCS mounted combat system vehicle wants a specific set of gunner training instructions, for example, he could use the vehicle's Warfigher Machine Interface to access the specific training package embedded on the vehicle's computer hard drive. The soldier could then perform the training using the actual vehicle he is assigned to and in any location vs. current methods where training occurs at a specific location and time.
Furthermore, while Stryker vehicles were only intended to be an interim solution until FCS vehicles arrived, they have gained favor among soldiers due to their mobility and ability to withstand attacks. Some lawmakers want to trim funding for FCS vehicles until its technologies are better tested.