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A brewing battle for a bigger piece of the auto pie

Aug 31, 2017 | 08:00 PM | Fastmarkets AMM staff

The U.S. automotive industry consumes roughly 25-million to 30-million tons of steel annually, most of it supplied by integrated steelmakers.

Electric-arc furnace-based (EAF) mini-mill steelmakers are nibbling away at integrated steel mills’ market share in the U.S. automotive industry, but have yet to make substantial inroads in the blast-furnace-based steel producers’ dominance.

“We’ve seen some incremental successes from a mini-mill point of view, but it’s been small numbers,” Chris Olin, a senior research analyst at Independence, Ohio-based Longbow Research, told AMM. “They’re just taking surface bites out of the business. It hasn’t been a real dogfight yet for market share.”

The U.S. automotive industry consumes roughly 25 million to 30 million tons of steel annually, most of which is supplied by integrated steelmakers ArcelorMittal USA, U.S. Steel and AK Steel, according to Olin.

To date, the most significant gains notched by mini-mills supplying steel to automakers have involved the internal—or non-exposed—parts of vehicles, rather than the external—or exposed—parts, which are mainly manufactured with advanced high-strength steels, Olin noted.

Mini-mills have also made inroads in a number of niche markets in the automotive sector—for example, supplying special
bar quality and merchant bar products, Olin noted, adding that EAF producers are looking to ramp up their coated steel sales
in the exposed-parts market in particular, mainly with cold-rolled steel and other lower automotive-grade steels.

“The real dogfight is in the flats market ... but it’s way, way out before mini-mills take a big chunk of market share,” Olin said. “The integrated mills’ stronghold is the automotive market, and it doesn’t seem like they will cede major share in the near term.

“The (integrated mills) produce cleaner steels with better surface qualities that can be used on the outer areas of vehicles,” he pointed out. Plus, “they already have established relationships” with automakers, and have continued to invest in research and development to advance their technologies and maintain their competitiveness.

“The integrated strategy is to move into high-strength steels, which not only can compete with any mini-mill product but also (with) aluminum,” Olin said.

That’s not to say mini-mills don’t enjoy their own unique set of advantages when it coms to competing in the automotive market. Cost structure, flexibility and corporate culture count among them, according to Philip K. Bell, president of the Steel Manufacturers Association, a Washington-based trade group representing North American EAF producers.

The   mini-mill industry “was built on entrepreneurial  spirit, with empowered work forces that can adapt quickly,” Bell said. “Increasingly, EAF steel producers can make high grades of steel with or without ore-based metallics.”

Steel degassing equipment represents the next step for mini-mills in the automotive industry, according to Olin. Indeed, EAF producers including Big River Steel, Evraz North America and Nucor have invested in steel degassing equipment, enabling them to produce new grades of advanced high-strength steel for the automotive industry.

The ability to produce high-strength steels has become a basic requirement for capturing automotive market share, according to Steve DuBuc, a Detroit-based director and materials expert at AlixPartners, a New York-based consulting firm.

“The pace of material science technology is quickening,” DuBuc told AMM.

“In terms of raw material consumption in an average vehicle on a weight basis, high-strength steel has increased in usage in
the past five years. The drop-off in traditional forms of steel has been significant and most was taken up by high-strength steel.”

Aluminum displaced some of that traditional steel, but “the shift between steel types has been more pronounced,” he said. “Aluminum has grown rapidly from a much lower baseline ... (but) the dominant material in a vehicle has always been—and still is—steel.”

EAF producers have been prioritizing early vendor engagement, meeting sometimes years in advance with tool and die manufacturers that are partnered with major automakers to determine the specifications of the steel products they need, according to Bell. 

A troubling trend potentially on the horizon for both integrated and EAF steelmakers is declining sales in the automotive market.
Steel business from the auto market flat-lined in the first quarter 2017, increased only modestly in the second quarter and seems to have stabilized moving into the third quarter, according to Olin.

U.S. automakers closed out the first six months of the year with sales below the record pace of the previous year.

U.S. automotive sales “won’t drop precipitously” in the next few years, but are expected to total 16.9 million light-vehicle units
this year and 15.2 million units in 2019, DuBuc said, citing a recent automotive report by AlixPartners.

The downward drift will be partially driven by a “used-car time bomb” of 500,000 more off-lease vehicle returns in 2017 vs. 2016, on top of the 500,000 more in 2016 vs. 2015, the AlixPartners report shows.

“The issue is the large amount of small vehicle inventory,” Olin agreed. “Demand has been pretty good for (sports utility vehicles) and light trucks, but the market for small cars has declined significantly. The market seems to be overproducing, and that inventory needs to be drawn down.”


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