producers of engineered bar products are not as vulnerable as
they were in the past to a serious supply-demand imbalance due
to a lowered cost structure, a steel industry analyst says.
Although U.S. engineered bar
capacity is on track to increase some 15 percent by 2015,
robust physical demand is expected to help keep the market
largely in balance, Christopher Plummer, managing director of
West Chester, Pa.-based Metal Strategies Inc., told attendees
at AMMs 5th Automotive Metals Conference in
Dearborn, Mich., this past week.
Demand for engineered bar, also
known as special bar quality (SBQ), is coming primarily from
the North American light vehicle and heavy truck sectors.
"The automotive market is
absolutely booming from the perspective of the buyers and the
mills and still has a long way to go," Plummer said.
Another bright spot for SBQ is
in the mobile equipment manufacturing market, which is
exporting to strong emerging economies that are increasingly
entering the mining sector, building cities and modernizing
their agricultural industries, he said.
As a result of the steady
demand, most domestic SBQ mills are running near capacity, he
The engineered bar market "has
been the tightest and with the highest effective operating rate
in North America. There are lead times for certain subsectors
of the product range out to 24 months, and 30 months in some
cases," Plummer said. "That is driving the capacity change
Though a series of separate
expansion projects, Nucor Corp., Gerdau Special Steel North
America, Steel Dynamics Inc., Republic Steel and Timken Co.
plan to add about 1.5 million tonsor 15 percent more
capacityto the U.S. market between 2011 and 2015, he
But with many mills now
operating at a lower cost structure than in years past, the
increased output is not expected to weigh down the sector.
Compared to less than 10 years ago, most SBQ mills today make
the product in electric-arc furnaces (EFs), which require scrap
rather than converted iron units, so "generally, the cost
structure has come down," Plummer said, noting that he
doesnt expect to see much of an upheaval as a result of
the new capacity.
"When you get too much capacity
coming in, (producers may) have to buy their way in (with
aggressive pricing) during a 24- to 36-month cycle. If worse
comes to worst, the high-cost producer is the most vulnerable,
but we dont expect a shakeout," he said.
Meanwhile, hot-rolled bar
imports have not yet put much pressure on the sector, he
Although import share for SBQ
has increased so far this year, with first-quarter imports of
hot-rolled bar up 14.2 percent year over year to 313,000
tonnes, the product is typically proprietary and pre-sold to
specific end-users, making an influx unlikely, Plummer