ASA Materials Market Digest by Westlund PVF

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ASA MATERIALS MARKET DIGEST April 2012 • Jim Olsztynski, Editor • Published monthly by the American Supply Association • www.asa.net • info@asa.net • 630.467.0000

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This report is published as a member service of the American Supply Association. Its contents are solely for informational purposes, and any use thereof or reliance thereon is at the sole and independent discretion and responsibility of the reader. While the information contained in this report is believed to be accurate as of the date of publication, ASA and the author disclaim any and all warranties, express or implied, as to its accuracy and completeness. © 2012 American Supply Association. All Rights Reserved.

ASA MATERIALS MARKET DIGEST

In the Spotlight

Stainless Steel

Lately, there appears to have been a surge of articles in both Stainless prices are bumping against headwinds that business and general interest media about the “insourcing” of include a nickel surplus and a slowdown in North American U.S. manufactured goods after a long trend toward outsourcing consumption, say various industry sources. Nickel prices on the to China and other international locations. A major reason is London Metals Exchange were on an upward trend through the that cheap labor isn’t so cheap anymore. Factory wages in China first week of February but then began to fall as buyers began to are said to have jumped 69% between 2005 worry about being caught with expensive and 2010. PVF people and other OEM/MRO material. suppliers stand to benefit greatly from this ...it will be hard to sustain MEPS contends that new mining projects trend as U.S. factories expand or get built in Australia, Brazil, New Caledonia and from scratch at the expense of overseas last year’s estimated 19% plants. Madagascar could add more than 100,000 jump in North American tons to global nickel production in 2012 Meantime, other countries still with “dirt stainless steel consumption. contributing as much as 40,000 tons of cheap” labor are not benefiting as much excess supply. Production may continue to because automation has made wages an outstrip consumption until 2014. ever-diminishing factor in manufacturing economics. Shipping costs, energy and lead times are Another factor is simply that it will be hard to sustain last becoming bigger factors with plants on the other side of the year’s estimated 19% jump in North American stainless steel globe. Protecting intellectual property, i.e. product design and consumption. China’s growth rate is also expected to slow to manufacturing “know how,” is another significant concern as about a 5% increase, which is down from 8% last year. are quality issues. Major U.S. stainless producers already are starting to lower Those looking for a major jobs boom are bound for surcharges for April due to falling nickel prices. AK Steel, ATI disappointment, however. Modern manufacturing succeeds Allegheny Ludlum and NAS reduced their surcharges for Type economically thanks to increased automation. A great irony 304 by 5.6%, Type 201 by 3.3%, and Type 316 by 4.8%. of our times is that one of the biggest problems facing U.S. manufacturers is a shortage of skilled workers. It’s not like the The International Trade Administration (ITA) has upheld days of old when plants could hire minimally educated people anti-dumping duty orders on stainless steel butt-weld fittings off the street and make them fully productive assemblers in a from Italy, Malaysia and Philippines in an expedited second matter of days. Today’s manufacturing plants are staffed with five-year review. The ITA assigned weighted-average dumping relatively few workers, but those that are hired have to be astute margins of 26.59% to all Italian producers/exporters; 7.51% to all enough to operate and maintain the complex computerized Malaysian producers/exporters; 33.81% to Enlin Steel Corp. and machinery that spew out today’s hard goods. 7.59% to all other Filipino producers/exporters.

Carbon Steel

Global stainless production reached a new record in 2011. The International Stainless Steel Forum released preliminary data indicating that stainless steel production grew by 3.3% in 2011. Total A great irony of our times production of 32.1 million metric tons set a new record for a single year. is that one of the biggest

February service center shipments of steel were up sharply from the same month in 2011 in both the U.S. and Canada. Inventory positions remained constant in the U.S. and deteriorated only slightly in problems facing U.S. China has remained the driving force in Canada, according to the Metal Service stainless steel production with growth Centers Institute. U.S. service centers saw manufacturers is a shortage of 11.9% in 2011. Asian production now shipments increase 14.3% compared with of skilled workers. accounts for 66.5% of all the stainless steel February 2011 and 11.6% comparing the first two months of the year. Steel product produced in the world. inventories were up 12.5% over February a year ago and up 1.8% from the previous month. At the current Tubular Products shipping rate, this represents 2.4 months of supply in inventory, which is a decrease of 1.6% from a year ago. Welded tubular prices were on a downslide as March drew to a close. Especially hard hit were OCTG commodity grades. U.S. raw steel output has been reaching levels last seen Despite continued strong drilling activity from a historical three and a half years ago. During the first week of March, perspective, low natural gas prices have taken a fair number mills operated at an average capacity utilization rate of 79.3%. It was the highest weekly level since the end of September 2008. of rigs out of play. Increased competition from both domestic Year-to-date, mills produced at an average capacity utilization and foreign producers coupled with uncertainty about the rate of 77.7%, which is up 7.1% from the same period last year. U.S. sustaining its economic recovery were said to be other 2

ASA MATERIALS MARKET DIGEST

major factors. Apart from the energy sector, significant gains in manufacturing and other economic sectors are encouraging, yet overall demand remains far below pre-recession levels. Japanese firms halt pipe imports. The Commerce Department’s International Trade Administration (ITA) issued a preliminary ruling in an anti-dumping duty administrative review that there were no imports of certain large-diameter carbon and alloy seamless standard, line and pressure pipe (over 4½ inches) from Japan’s JFE Steel Corp., Nippon Steel Corp. and NKK Tubes during the June 1, 2010, to May 31, 2011, period of review. The ITA also determined that product from Sumitomo Metal Industries might have entered the United States, but Sumitomo’s claims that it made no shipments to the U.S. were substantiated because the product was sold by trading companies, distributors and end-users in Japan and third countries. Pipe Logix pegged average OCTG prices at $1,914 per ton in February, which is up 2.5% from the previous month. Average ERW OCTG tags gained 4.6%, and seamless OCTG prices inched up 0.7%. March prices are said to have held relatively steady with an increase in oil rigs balancing a decline in natural gas drilling. Build them and they will proliferate. Still more major steel pipe and tube producers announced plans to build OCTG mills in the U.S. Russia’s United Metallurgical Co. (OMK) said it has begun construction on a new OCTG plant in an unannounced U.S. location that is expected to reach a capacity of 200,000 tons per year by 2013. OMK also announced the purchase of an OCTG finishing plant in Texas and that it plans to open its own trading company in the U.S.

China’s Tianjin Pipe Group plans a $1 billion seamless pipe mill in Gregory, TX, and has reportedly begun construction on a finishing and threading facility at the same location. That first phase of the project is expected to be completed by early 2013. No timeline has been announced for the rest of the project, which is said to be the largest investment by a Chinese manufacturing company in the U.S.

Copper “Copper’s up!” “Copper’s down!” “Copper’s on the rebound!” Choose any of those headlines, and you’re bound to be right on any given day. After surging by double-digit percentages during the first two months of the year, copper prices have hit a wall, lately, due mainly to slowing demand in China. Some analysts see an overall upward pricing trend for the year due to supply constraints from labor strife and depleted mines along with increased demand from a recovering U.S. economy, including construction. For the first three months, prices have generally swung between $3.70 and $3.90/lb. Other analysts say copper prices will head south in 2012. This line of reasoning takes note of the highest inventory surplus in China since 2002 as well as numerous mining projects and expansions underway, thanks to the surge in copper prices over the last couple of years. The naysayers also take note of exceptional supply disruptions owing to labor disputes in 2011 that are unlikely to be repeated in 2012. On March 26, Intierra Resource Intelligence released its BME Copper Quarterly Report citing projecting copper supply growth in excess of 4% a year through 2016. “However, given an expected modest revival in consumption growth and a reduced contribution from scrap, the supply-driven slide into

U.S. Pipe & Tube Imports Landed duty-paid value (in $1,000s) Annual & Year-To-Date Data from Jan 2011-Jan 2012

2011

YTD 2011

YTD 2012

% Change YTD

% Change 2007-11

Total Carbon and Alloy Pipe & Tube

9,898,742

730,908

1,009,381

38.1%

5.8%

Carbon Seamless Tubular Products (Other than OCTG)

1,965,444

137,915

204,449

48.2%

45.7%

Carbon Seamless OCTG

2,612,205

217,490

192,784

-11.4%

58.9%

Welded Tubular Products (Other than OCTG)

2,253,821

148,237

258,132

74.1%

-49.4%

Welded OCTG

1,556,185

103,849

215,638

107.6%

153.0%

Flanges, Fittings & Tool Joints

1,239,362

94,217

129,938

37.9%

29.0%

Stainless Seamless Tubular Products

920,190

65,836

84,231

27.9%

-3.1%

Stainless Welded Tubular Products

438,209

31,742

42,724

34.6%

-30.9%

Stainless Flanges, Fittings & Tool Joints

558,825

36,338

53,152

46.3%

2.8%

ASA MATERIALS MARKET DIGEST

Metal theft claims surged 81%. Metal theft insurance claims have increased by 81% over the last three years, according to a report from the National Insurance Crime Bureau (NICB). Of 25,083 total claims, 96.1% pertained to the theft of copper; 3.3% involved aluminum; and 0.7% and 0.5% concerned brass and bronze, respectively. Ohio was the hardest-hit state, with 2,398 claims, followed by Texas (2,023), Georgia (1,481), California Global copper demand still outpaces supply. According to (1,348) and Illinois (1,284). ASA members should contact Dan preliminary data from the International Copper Study Group Hilton, Director of Government Affairs, to learn more about (ICSG), the world apparent refined copper how ASA has taken the lead to advance balance for the full-year 2011 indicates a legislation that aims to substantially curtail production deficit of 358,000 tons, which is China accounted for 123% copper theft. nearly equal to the deficit of 377,000 tons of the increase in global A container shortage has plagued scrap in 2010. In 2011, world usage of refined copper consumption exports, industry sources say. Nonferrous copper grew by around 3%, principally exports to Europe are especially hard hit owing to increases in China and Russia. between 2000 and 2010. with bookings set back to the end of April. According to ICSG, the average global mine Causes include high demand, rising metal capacity utilization rate fell to about 79% Source: Wall Street Journal prices, a weak dollar and mild weather. in 2011 and was at the lowest level in at least 20 years. The average LME cash price Falling nickel prices are hurting the stainless scrap market for February 2012 was $8,422.69 per ton, up from the January as buyers wait and see where the bottom might lay. average of $8,043.45 per ton. The 2012 high and low copper prices through the end of February were $8,658 and $7,471 per U.S. ferrous scrap exports surged 16% in January, with ton, respectively, and the average was $8,233.07 per ton. buyers in Turkey, South Korea, Malaysia and India more than making up for a drop in Chinese demand. Canada keeps duties on U.S. copper pipe fittings. The Canadian International Trade Tribunal (CITT) has continued its Plastics findings in the sunset review of anti-dumping duty orders on certain copper pipe fittings from the United States, South Korea and China as well as the countervailing duty order on the same Prices of major commodity thermoplastics continued to product from China. move upward through the end of the first quarter, reports Plastics Technology magazine. This movement was driven primarily driven by feedstock cost increases. Scrap Markets surplus will be gradual rather than dramatic,” say the researchers. Paul Dewison, Director Base Metals for Intierra, stated, “With the physical market for copper remaining quite tight through 2012 and 2013, prices are forecast to remain within sight of $8,000/ton. As the impending surplus becomes more evident late in 2013 and into 2014, prices should reduce to around $6,000/ton in 2016.”

Copper scrap prices have been relatively steady, industry sources say. Chinese buyers, usually the main players, have been relatively quiet in buying No. 1 and No. 2.

Polyethylene prices moved up 3¢/lb. in February, while polypropylene rose 5¢/lb. last month after surging by 16.5¢ in February.

PVC prices rose 2¢/lb. in February. A new Scrap is worth $100 billion. The U.S. 3¢ hike emerged for Apr. 1 and appears to scrap recycling industry grew nearly 30% to have a chance at sticking due to tight PVF $100 billion in 2011 from the previous year, Metal theft insurance claims supply. according to preliminary data gathered by have increased by 81% over the Institute of Scrap Recycling Industries. ABS prices rose an average of 5¢/lb. in The scrap industry processed some the last three years... February, followed up with March price 134 million tons of recyclables last year, hikes of 7¢ to 11¢/lb. One supplier, Ineos, according to data based on information had also issued a 6¢ increase for Apr. 1. from the U.S. Geological Survey, the Driving these moves were spikes in all key feedstock prices. Commerce Department, industry associations and other sources. Almost 39% of that scrap was exported to some 160 countries, up 14%, according to Census data. “Census figures also show that scrap was a top-five export from the U.S., positively contributing to our balance of trade by more than $32 billion,” ISRI chief economist Joseph Pickard said.

ASA MATERIALS MARKET DIGEST

News of Note HD Supply agrees to sell industrial PVF business. HD Supply announced on March 12 that it has entered into a definitive agreement to sell its Industrial PVF business to Shale-Inland Holdings LLC, an affiliate of investment firms TowerBrook Capital Partners LP and The Stephens Group, LLC. TowerBrook Capital Partners is an investment management firm with approximately $4.5 billion of capital under management and offices in New York, London and San Francisco. The Stephens Group, LLC, is a private, family-owned firm that invests its capital in private companies with large positions in energy services, gas exploration and production, media, communications, consumer, manufacturing and other industries. Elkay challenges Chinese sink imports. Elkay Manufacturing Co. has filed petitions with the U.S. International Trade Commission and the Commerce Department alleging dumped and subsidized imports of drawn stainless steel sinks from China at rates of 22.81% to 76.53%. During the 2009-11 period of investigation, imports of subject sinks jumped 60.4%, according to the petitions, while in 2011, imports from China constituted 85.2% of all stainless sink imports. The Canada Border Services Agency ruled on the same product in an affirmative preliminary anti-dumping and subsidy finding in January, imposing dumping margins of 21.1% to 55% and subsidy margins of up to 19.5%.

NW Pipe gets booted from Nasdaq. Northwest Pipe Co. is no longer in compliance with Nasdaq Stock Market listing rules because of delays in filing its 2011 annual report and has been put on notice that it faces delisting. The company had until April 2 to submit a plan outlining how it might meet listing requirements. The company indicated it intended to submit a compliance plan by that date. MRC closes Aussie distributor purchase. MRC Global Inc. has completed its acquisition of Australia’s OneSteel Piping Systems (OPS). The Houston-based PVF distributor said the company now operates under the name MRC Piping Systems Australia. The transaction was reported as worth $70.9 million. Precision Castparts to acquire RathGibson. RathGibson, a manufacturer of welded, drawn, and seamless stainless steel, nickel, and specialty alloy tubing, has agreed to be acquired by Precision Castparts Corp. (PCC). The acquisition is pending regulatory approvals. PCC is a diversified manufacturer of complex metal components and products serving the aerospace, power, and general industrial markets. RathGibson filed for Chapter 11 bankruptcy protection in 2009 and emerged in June 2010 under the control of Wayzata Investment Partners. PCC plans to fold RathGibson’s operations into its forged products business segment. Take your minerals and…! China’s hard-line stance against exporting critical rare-earth metals has sparked a lot of investment in mines in other parts of the world. Global production is expected to double in the next few years, the Wall Street Journal reported on March 14.

ASA MATERIALS MARKET DIGEST

Producer Price Index - Key Industry Products Product Code

Jan. 2012

Feb. 2012

% Change

% Change Feb. 2011

1149-02

271.0

272.2

0.4

6.6

Gates, globes, angles, and checks

1149-0201

307.8

311.9

1.4

3.8

Ball valves

1149-0202

310.2

310.0

-0.1

13.4

Butterfly valves

1149-0203

191.3

0.0

1.2

Industrial plug valves

1149-0204

212.1

210.7

-0.7

6.0

Plumbing and heating valves (low pressure)

1149-0205

267.6

0.0

7.4

Solenoid valves

1149-0208

274.6

274.2

-0.1

8.4

Other industrial valves, including nuclear

1149-0209

253.1

253.4

0.1

10.1

Automatic valves

1149-0211

155.9

156.3

0.3

5.1

Steel pipe & tube

1017-06

295.2

292.9

-0.8

10.0

OCTG, standard, line pipe, carbon

1017-0671

126.0

124.1

-1.5

13.7

Steel pipe & tube, alloy

1017-0673

112.8

111.5

-1.2

9.7

Steel pipe & tube, stainless steel

1017-0674

104.3

109.1

4.6

5.6

Metal pipe fittings, flanges and unions

1149-0301

290.2

296.7

2.2

6.1

Copper & copper-base alloy pipe and tube

1025-0239

221.6

228.3

3.0

-17.3

Plastic pipe

0721-0603

95.7

98.2

2.6

4.2

Plastic pipe fittings & unions

0721-0604

133.3

133.8

0.4

6.1

1054-02

278.4

278.8

0.1

3.3

Vitreous china fixtures

1052

147.3

147.4

0.1

2.9

Bath & shower fittings

1054-0211

224.0

224.5

0.2

3.2

Lavatory & sink fittings

1054-0218

139.8

140.1

0.2

4.2

Miscellaneous brass goods

1054-0223

288.2

288.3

0.0

3.1

1056

N/A

199.9

N/A

1.5

1061

254.5

0.0

4.7

Cast iron heating boilers, radiators and convectors

1061-0106

161.5

0.0

6.0

Steel heating boilers, all classes

1061-0112

159.6

0.0

1.0

1066-01

323.7

0.0

1.1

Electric water heaters

1066-0101

307.6

0.0

1.6

Non-electric water heaters

1066-0114

203.3

0.0

0.7

99.9

0.0

0.9

Pipe, Valves & Fittings Metal valves, except fluid power

Plumbing Fixtures, Fittings & Trim

Enameled iron & metal sanitary ware Steam & Hot Water Equipment

Domestic water heaters

Warehousing, Storage, & Related Services

Source: U.S. Department of Commerce Bureau of Labor & Statistics

ASA MATERIALS MARKET DIGEST