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Galvanized steel sector gains economic strength

Keywords: Tags  galvanized steel, North American galvanizers, appliance industry, Severstal, Sergei Kuznetsov, ThyssenKrupp, Galvstar,

North America’s galvanizing industry, which was hammered by the Great Recession of 2008-09, is showing signs of recovery, with new lines coming on stream and production estimated to reach 14 million to 15 million tons this year. That’s still well below the 18 million tons reported in the pre-recession year of 2006, but well above the 9 million tons produced in 2009 at the bottom of the recession.

“It is definitely starting to pick up,” said Gary Dallin, director of the GalvInfo Center in North Carolina’s Research Triangle Park near Durham. The center, operated by the International Zinc Association, is sponsored by major producers and service centers.

Dallin said there are a number of “new lines under construction. That whole process started about four or five years ago, but much of that new activity went into hiatus because of the recession.”

Galvanized sheet’s biggest North American market is the automotive sector, which accounts for about 40 percent of consumption. “Automotive fell right off the table in 2008,” Dallin said, which explains much of the galvanized sheet industry’s weakness during the recession. But with North American vehicle sales recovering strongly in 2010 and 2011, galvanized producers have reason for optimism. North American vehicle sales reached an annualized rate of 14 million units in the first quarter of 2012, up from 13 million in the same period last year. “We would expect that the shape of the automotive vehicle sales curve will be pretty similar to the galvanized production figures,” Dallin said.

Construction and steel service centers account for the next two largest chunks of galvanized sheet production, while appliances and the electric industry—both at less than 5 percent—account for the rest of the industry’s annual output. The use of galvanized sheet has dropped off sharply in residential construction since the recession and has yet to recover, although Dallin said that galvanized use in commercial construction is coming back at a stronger pace.

Although there are “still a lot of idled lines, new galvanized capacity is coming on,” Dallin said. Much of that new North American capacity is being brought on line by OAO Severstal, ThyssenKrupp AG and Galvstar LLC.

Severstal North America Inc., a subsidiary of Russian steelmaker OAO Severstal, is in the midst of a $1.1-billion expansion that will make it one of the leading steel producers in the world, capable of meeting the most demanding applications for 21st-Century automotive and original equipment manufacturing (OEM) customers. In August, Severstal launched its new 72-inch coupled pickle line tandem cold mill at its Dearborn, Mich., mill. Now ramping up to full capacity of 2.1 million tons per year, the line is being complemented by a $285-million hot-dip galvanizing line in the same Michigan mill complex.

“The new equipment will enable us to offer products of superior quality and provide exceptional service to our customers,” said Sergei Kuznetsov, chief executive officer of Severstal NA, “as well as produce the next generation of advanced high-strength steels for automotive applications.”

Severstal began cold commissioning of the Dearborn hot-dip galvanizing line in October and launched full production of galvanized products in January. Kuznetsov told employees that the “long-awaited launch of this new state-of-the-art facility strengthens our presence in the automotive industry with highly demanded galvanized and galvannealed products for internal and external automobile parts.”

The hot-dip galvanizing line, capable of producing 500,000 tons of hot-dip galvanized and galvannealed steel annually, includes the most modern controls for coating thickness and surface texture, as well as alloy and phase control, the company said.

While the new lines were coming into commercial production at Dearborn, Severstal also was completing the launch of its second hot-dip galvanizing line at the company’s mill in Columbus, Miss., with a designed annual capacity of 600,000 tons of hot-rolled and cold-rolled galvanized products and capable of galvanizing steel up to 72 inches wide. The new line will target applications for the construction, infrastructure and culvert markets.

The start-up of the second line at Columbus complements the recent launch of the mill’s second electric-arc furnace primary strand and the push-pull pickle line. The Phase 2 expansion project at the Columbus mill increases annual steel capacity to 3.4 million tons and annual galvanizing capacity to 1.1 million tons.

Across the state line from Severstal’s Mississippi facility, ThyssenKrupp Steel USA began producing its first coated prime coil on hot-dip galvanizing line No. 1 at its greenfield mill in Calvert, Ala., in March last year. Three other galvanizing lines had been planned but were delayed when costs exceeded expectations.

When complete, the four galvanizing lines at the Calvert mill will have the capacity to produce 1.8 million tons of coated products for a number of applications, including construction. The company intends to offer a comprehensive list of products at the Calvert mill, making hot-rolled band, pickled coil and fully finished cold-rolled products, as well as galvanized, galvannealed, aluminized and Galvalume products.

The Calvert mill uses high-quality carbon steel slab produced at the company’s recently completed greenfield mill in Brazil. The slabs are processed through the Calvert mill’s hot-strip mill, cold-rolling mill and hot-dip galvanizing lines.

Meanwhile, Galvstar spent 2011 bringing a new galvanizing line into commercial production at the former American Axle & Manufacturing plant in Buffalo, N.Y. Galvstar is producing about 250,000 tons per year of Galfan, which is 95 percent zinc and almost 5 percent aluminum coated steel utilizing the hot-dip galvanized process. The company said it is targeting the market for construction products.

One line expected to start up in 2013 is a 400,000-tonne galvanizing facility being built near Monterrey, Mexico, by a joint venture of Mexico-based Ternium SA and Japan’s Nippon Steel Corp. The new facility will produce high-grade galvanized automotive steel for the Mexican light vehicle industry, which is expected to increase production to 3 million vehicles annually in 2015 from 2.3 million in 2010.

Hamilton, Ontario-based ArcelorMittal Dofasco Inc. announced in November it was delaying the schedule for converting an existing galvanizing line at its Hamilton Works and installing a new galvanizing line and temper mill.

Another recent development is RG Steel LLC’s announcement in early March that it intends to start up the No. 2 galvanizing line at the company’s Sparrows Point, Md., mill complex. Idled in 2010—before RG Steel bought the facility from Severstal NA—the No. 2 galvanizing line will give the mill an additional 180,000 tons of galvanized capacity and allow the mill to dedicate its No. 4 line to Galvalume products.

With substantial amounts of new capacity coming on line, some in the industry worry about an oversupply of galvanized product. Residential construction remains depressed, and commercial construction is still a long way from the level of activity it achieved in 2006.

Dallin said the capacity situation might not be as stark as it first appears. “There is new capacity coming on,” he said, “but there are still a lot of idled lines out there. And some of those lines are just inoperable.”

RG Steel’s plans to restart its idle No. 2 galvanizing line at Sparrows Point is just a drop in the bucket compared with the number of lines that are idled and inoperable in North America. The GalvInfo Center recently reported that there are a total of 75 hot-dip lines operating in North America, while 17 lines are idle and six are completely inoperable. The idled lines in North America account for about 4 million tons of capacity.

Galvanized sheet producers are keenly aware of two factors that have the capability of throwing a monkey wrench into domestic production forecasts: zinc prices and imports.

Galvanizers account for about 50 percent of zinc consumption in North America, and any increase in the price of zinc plays straight to the bottom line for galvanizers. Since the mid-1990s, zinc prices have been on the same roller-coaster ride as other metallic commodities.

“Zinc is the single-largest commodity cost for galvanizers,” Dallin said. “Until 2000, the price of zinc was typically somewhere between 50 and 60 cents per pound. That was the price for years.” Once other commodities, such as copper, began their 21st-Century surge, zinc went along for the ride. “Zinc got as high as $2 a pound just before the bottom fell out of the U.S. economy, and in recent years it has stabilized at about half that. Right now, zinc is slightly north of $1 a pound.”

Because of the volatility in pricing, producers are looking at ways of using less zinc in their galvanizing applications. But they also worry about competition from overseas. As the Chinese steel industry has expanded, so has China’s galvanizing sector. GalvInfo said that China has expanded its galvanizing lines sixfold in the past 20 years to 300 lines from 50, although Dallin noted that “not all of them are running.”

Dallin also noted that India has experienced a major expansion of its galvanizing capacity in recent years. “The two big exporters that everybody over here watches are China and India,” he said.

The American Galvanizers Association, which represents general galvanizers who galvanize steel after it is fabricated, also is seeing signs of a business turnaround. The association’s 130 members provide galvanized steel for industrial applications, such as steel utility poles, and member companies each generate from $5 million to $50 million in revenue per year, according to executive director Philip Rahrig. “We are pretty optimistic about 2012,” he said.

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