March 15, 2021

Regulatory Uncertainty in Europe

EU chemicals need stable, strong regulatory framework to grow – execs

Author: Morgan Condon

2021/03/12

LONDON (ICIS)–A firmer connection is needed between the EU Green Deal and the bloc’s industrial strategy to support the competitiveness of its chemicals industry, according to executives in the European chemicals industry.

Rene Van Sloten, industrial policy advisor at Europe-wide trade group Cefic, emphasised the importance of this link to meet the EU’s net-zero carbon dioxide (CO2) emissions, 2050 environmental targets.

“There are opportunities [for chemicals in the Green Deal] but in order for European industry to benefit from this it needs to develop solutions for all these problems, not importing solutions from other parts of the world,” said Van Sloten.

He estimated that the chemicals industry would require annual investments between €17-27bn, depending on the level of ambition of making sustainable production a reality.

“We need to keep Europe attractive as investment location. If it is not attractive, other regions will compete for investment, so we need to make sure framework is there,” he said.

Dennis Kredler,  director for EU Affairs at US chemicals major Dow, which runs large production facilities in the region,  said that the EU’s chemicals industry has the potential to become a “game changer”.

He added that, however, any innovation in the industry would depend on public and private funding, something he considered to be challenging due to what he described as unstable regulatory landscape.

“Investment needs as much predictability as possible. You could argue that there is a lot of predictability, many companies in this industry are putting investment plans in place to achieve these outcomes,” said Kredler.

“The challenge is that practically our entire regulatory framework [is currently] under review.”

The EU has stated it aims to renew and upgrade its Reach chemicals regulatory framework, already the strictest in the world; chemicals producers often complain its implementation adds red-tape and a financial burden on their operations.

With issues as diverse yet important as climate change, plant permits, chemicals management, and the circular economy all vying for attention, a unified industrial strategy would help connect the dots and provide a clear path forwards.

Van Sloten and Kredler were speaking earlier this week at Cefic-organised event titled ‘Beyond European economic recovery: How can industry support Europe’s competitive sustainability?’

https://www.icis.com/explore/resources/news/2021/03/12/10617016/eu-chemicals-need-stable-strong-regulatory-framework-to-grow-execs

March 11, 2021

Hexion Results

Hexion Inc. Announces Fourth Quarter 2020 Results

Fourth Quarter 2020 Highlights

• Net sales from continuing operations of $655 million, an increase of 4% compared with $630 million in the prior year period
• Loss from continuing operations, net of taxes of $37 million
• Net loss of $35 million

• Segment EBITDA from continuing operations of $74 million compared to $53 million in the fourth quarter 2019. Both periods reflect the treatment of the pending divestiture as discontinued operations.
  
  
• As previously announced, Hexion entered into a definitive agreement to sell our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses for approximately $425 million including cash consideration of $305 million

March 10, 2021 07:00 AM Eastern Standard Time

COLUMBUS, Ohio–(BUSINESS WIRE)–Hexion Inc. (“Hexion” or the “Company”) today announced results for the fourth quarter ended December 31, 2020.

“We were pleased to drive strong results in the fourth quarter of 2020 as Segment EBITDA from continuing operations improved by 40 percent compared to the prior year reflecting our diversified portfolio and rebounding demand in many key end markets,” said Craig Rogerson, Chairman, President and Chief Executive Officer. “It was also our highest fourth quarter Segment EBITDA from continuing operations in the last seven years reflecting our multi-year efforts to streamline our cost structure, while still strategically investing in the specialty portions of our business. In the fourth quarter of 2020, our Adhesives segment reflected continued strength in North America residential construction and gains in our global formaldehyde business. Segment EBITDA in our Coatings and Composites segment increased more than 100 percent year-over-year due to strong results in specialty epoxy from wind energy demand and Versatic Acids™ and Derivatives due to increasing demand in architectural coatings, as well as improved results in our base epoxy resins.”

Mr. Rogerson added: “Despite softer overall earnings in 2020, we generated solid cash flow from operations. In the second half of the year, we generated $92 million of free cash flow¹ and positive free cash flow for full year 2020 despite the pandemic and a weaker second quarter of 2020. As we conclude the year, I’d like to acknowledge the dedication and resiliency of our global associates as they focused on safely operating our plants without interruption and serving our valued customers in the face of the global pandemic. Last September, we were also pleased to announce the sale of our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses during a time when potential transactions within the industry were often paused because of the pandemic. When completed, this transaction will streamline our portfolio and specialty product mix, while improving the Company’s financial flexibility and liquidity profile.”

“Looking ahead, we are cautiously optimistic about the global economic conditions considering the potential ongoing impact of the pandemic. Several key end markets – housing and wind energy in particular – were strong through year-end and those trends have continued in early 2021. We expect to further strengthen our balance sheet and continue to deliver significant free cash flow in the coming year. Looking ahead, we also expect to pursue potential bolt-on and/or more transformational transactions. With solid momentum heading into 2021, we remain focused on driving year-over-year earnings growth and generating stakeholder value through opportunistic share repurchases and debt reduction.”

Hexion Announces Strategic Divestiture

On September 27, 2020, the Company entered into a Purchase Agreement for the sale of its Phenolic Specialty Resin (PSR), Hexamine and European-based Forest Products Resins businesses (together with PSR, the “Held for Sale Business” or the “Business”) for approximately $425 million to Black Diamond and Investindustrial. The consideration consists of $335 in cash and certain assumed liabilities with the remainder in future proceeds based on the performance of the Held for Sale business. The final purchase price is subject to customary post-closing adjustments.

Hexion expects to use the net proceeds to invest in its business and reduce its borrowings under its Senior Secured Term Loan, in accordance with its credit agreement. The transaction is intended to close in the first quarter of 2021, subject to regulatory approvals and other customary closing conditions, including Works Council consultation.

Fresh Start Accounting

Upon emerging from Chapter 11 on July 1, 2019 (“Effective Date”) and qualifying for the application of fresh-start accounting, Hexion’s assets and liabilities were recorded at their estimated fair values which, in some cases, were significantly different than amounts included in the Company’s financial statements prior to the Effective Date. Accordingly, Hexion’s financial condition and results of operations on and after the Effective Date are not directly comparable to our financial condition and results of operations prior to the Effective Date. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to the Effective Date. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on or before the Effective Date.

Fourth Quarter 2020 Results

In January 2020, Hexion updated its reportable segments to align around two growth platforms: Adhesives; and Coatings and Composites. The Adhesives Segment is organized around Construction Adhesives, Industrial Adhesives, and Intermediates and Derivatives, while the Coatings and Composites Segment is organized around Composites, Performance Coatings, and Base Chemicals. Corporate and Other continues to be a reportable segment.

As of December 31, 2020, the Company reclassified the assets and liabilities of our Held for Sale Business as held for sale on the unaudited Condensed Consolidated Balance Sheets and reported the results of its operations for the three months and year ended December 31, 2020 as “(Loss) income from discontinued operations, net of taxes” on the unaudited Condensed Consolidated Statements of Operations. Amounts for prior periods have similarly been retrospectively reclassified for all periods presented. See Schedules 9 and 10 for additional financial information for our Held for Sale Business.

Total net sales for the quarter ended December 31, 2020 were $655 million, an increase of 4% compared with $630 million in the prior year period. Volumes positively impacted net sales by $63 million due to volume increases in Hexion’s global formaldehyde, specialty epoxy and base epoxy resins, and Versatic Acids™ and Derivatives businesses. Pricing negatively impacted sales by $31 million due primarily to raw material price decreases contractually passed through to customers across many businesses. Foreign currency translation negatively impacted net sales by $7 million due to the weakening of various foreign currencies against the U.S. dollar in the fourth quarter of 2020 compared to the fourth quarter of 2019.

Net loss for the Successor three months ended December 31, 2020 was $35 million compared to a net loss of $46 million in the Successor period through December 31, 2019. Total Segment EBITDA from continuing operations for the quarter ended December 31, 2020 was $74 million, an increase of $21 million compared with the prior year period, or 40 percent, primarily reflecting improved results in our adhesives and coatings and composites businesses.

Fiscal Year 2020 Results

Total net sales for the year ended December 31, 2020 were $2.5 billion, a decrease of 10% compared with $2.8 billion in the prior year period. Pricing negatively impacted sales by $182 million due primarily to raw material decreases contractually passed through to customers across many of our businesses, as well as unfavorable product mix and continued competitive market conditions in our base epoxy resins and specialty epoxy resins businesses. Volume decreases negatively impacted net sales by $70 million, which was primarily due to volume decreases in our North American and Latin America forest products resins businesses and our North American formaldehyde business driven by COVID-19’s negative impact on global demand. These decreases were partially offset by volume increases in our specialty epoxy business driven by strong global demand in wind energy. Foreign currency translation negatively impacted net sales by $42 million.

Net loss for the year ended December 31, 2020 was $230 million compared to a net income of $2,805 million for the year ended December 31, 2019. Total Segment EBITDA from continuing operations for the year ended December 31, 2020 was $294 million, a decrease of 14 percent compared with $340 million in 2019, driven primarily by the impact of the global pandemic, weaker margins in the Company’s base epoxy resins business, and temporary manufacturing outages at our Pernis site which negatively impacted our 2020 Segment EBITDA by approximately $15 million. These Segment EBITDA decreases were partially offset by improved earnings in the specialty epoxy and Versatic™ Acids and Derivatives business, as well as continued cost reduction and productivity initiatives. Fiscal Year 2020 was also negatively impacted by the absence of $18 million of Segment EBITDA in the prior year related to deferred revenue that was accelerated on July 1, 2019 as part of Fresh Start Accounting.

Segment Results

Following are net sales and Segment EBITDA by reportable segment for the Successor three and twelve months ended December 31, 2020 and Successor three and twelve months ended December 31, 2019.

(1) Intersegment sales are not significant and, as such, are eliminated within the selling segment.

Hexion Announces Site Expansion Plans

As part of its broader investment plan to drive innovation and growth in its specialty product lines, Hexion announced that it intends to expand its Portland, Oregon, manufacturing site. The Company is beginning the permitting stages of a second automated manufacturing line in Portland to support its recently-launched ArmorBuilt fire resistant wrap, a new product which greatly improves fire protection when applied to a substrate, such as wood utility poles. The first automated production line will come online at the end of the first quarter of 2021 and the second automated line is expected to start up around year-end 2021.

ArmorBuilt wrap is a proprietary wrap from Hexion that can be applied to either new or existing wood utility poles. Hexion has been providing high-performing adhesives for decades and has leveraged its expertise to develop a fire-retardant coating for more sustainable wooden utility poles that greatly improves their fire resistance. ArmorBuilt wrap has passed an industry approved wildfire simulation burn test for fire resistance.

Efficiency and Cost Savings Initiatives

In the fourth quarter of 2020, Hexion continued to implement the creation of a business services group with Capgemini to provide certain administrative functions to further improve the Company’s organizational efficiency and reduce its costs in future years. In fiscal year 2020, the Company also achieved $23 million of cost savings related to all its cost savings initiatives. At December 31, 2020, Hexion had approximately $6 million of total in-process savings that it expects to realize over the next 12 months.

https://www.businesswire.com/news/home/20210310005460/en/Hexion-Inc.-Announces-Fourth-Quarter-2020-Results

March 11, 2021

Hexion Results

Hexion Inc. Announces Fourth Quarter 2020 Results

Fourth Quarter 2020 Highlights

• Net sales from continuing operations of $655 million, an increase of 4% compared with $630 million in the prior year period
• Loss from continuing operations, net of taxes of $37 million
• Net loss of $35 million

• Segment EBITDA from continuing operations of $74 million compared to $53 million in the fourth quarter 2019. Both periods reflect the treatment of the pending divestiture as discontinued operations.
  
  
• As previously announced, Hexion entered into a definitive agreement to sell our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses for approximately $425 million including cash consideration of $305 million

March 10, 2021 07:00 AM Eastern Standard Time

COLUMBUS, Ohio–(BUSINESS WIRE)–Hexion Inc. (“Hexion” or the “Company”) today announced results for the fourth quarter ended December 31, 2020.

“We were pleased to drive strong results in the fourth quarter of 2020 as Segment EBITDA from continuing operations improved by 40 percent compared to the prior year reflecting our diversified portfolio and rebounding demand in many key end markets,” said Craig Rogerson, Chairman, President and Chief Executive Officer. “It was also our highest fourth quarter Segment EBITDA from continuing operations in the last seven years reflecting our multi-year efforts to streamline our cost structure, while still strategically investing in the specialty portions of our business. In the fourth quarter of 2020, our Adhesives segment reflected continued strength in North America residential construction and gains in our global formaldehyde business. Segment EBITDA in our Coatings and Composites segment increased more than 100 percent year-over-year due to strong results in specialty epoxy from wind energy demand and Versatic Acids™ and Derivatives due to increasing demand in architectural coatings, as well as improved results in our base epoxy resins.”

Mr. Rogerson added: “Despite softer overall earnings in 2020, we generated solid cash flow from operations. In the second half of the year, we generated $92 million of free cash flow¹ and positive free cash flow for full year 2020 despite the pandemic and a weaker second quarter of 2020. As we conclude the year, I’d like to acknowledge the dedication and resiliency of our global associates as they focused on safely operating our plants without interruption and serving our valued customers in the face of the global pandemic. Last September, we were also pleased to announce the sale of our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses during a time when potential transactions within the industry were often paused because of the pandemic. When completed, this transaction will streamline our portfolio and specialty product mix, while improving the Company’s financial flexibility and liquidity profile.”

“Looking ahead, we are cautiously optimistic about the global economic conditions considering the potential ongoing impact of the pandemic. Several key end markets – housing and wind energy in particular – were strong through year-end and those trends have continued in early 2021. We expect to further strengthen our balance sheet and continue to deliver significant free cash flow in the coming year. Looking ahead, we also expect to pursue potential bolt-on and/or more transformational transactions. With solid momentum heading into 2021, we remain focused on driving year-over-year earnings growth and generating stakeholder value through opportunistic share repurchases and debt reduction.”

Hexion Announces Strategic Divestiture

On September 27, 2020, the Company entered into a Purchase Agreement for the sale of its Phenolic Specialty Resin (PSR), Hexamine and European-based Forest Products Resins businesses (together with PSR, the “Held for Sale Business” or the “Business”) for approximately $425 million to Black Diamond and Investindustrial. The consideration consists of $335 in cash and certain assumed liabilities with the remainder in future proceeds based on the performance of the Held for Sale business. The final purchase price is subject to customary post-closing adjustments.

Hexion expects to use the net proceeds to invest in its business and reduce its borrowings under its Senior Secured Term Loan, in accordance with its credit agreement. The transaction is intended to close in the first quarter of 2021, subject to regulatory approvals and other customary closing conditions, including Works Council consultation.

Fresh Start Accounting

Upon emerging from Chapter 11 on July 1, 2019 (“Effective Date”) and qualifying for the application of fresh-start accounting, Hexion’s assets and liabilities were recorded at their estimated fair values which, in some cases, were significantly different than amounts included in the Company’s financial statements prior to the Effective Date. Accordingly, Hexion’s financial condition and results of operations on and after the Effective Date are not directly comparable to our financial condition and results of operations prior to the Effective Date. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to the Effective Date. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on or before the Effective Date.

Fourth Quarter 2020 Results

In January 2020, Hexion updated its reportable segments to align around two growth platforms: Adhesives; and Coatings and Composites. The Adhesives Segment is organized around Construction Adhesives, Industrial Adhesives, and Intermediates and Derivatives, while the Coatings and Composites Segment is organized around Composites, Performance Coatings, and Base Chemicals. Corporate and Other continues to be a reportable segment.

As of December 31, 2020, the Company reclassified the assets and liabilities of our Held for Sale Business as held for sale on the unaudited Condensed Consolidated Balance Sheets and reported the results of its operations for the three months and year ended December 31, 2020 as “(Loss) income from discontinued operations, net of taxes” on the unaudited Condensed Consolidated Statements of Operations. Amounts for prior periods have similarly been retrospectively reclassified for all periods presented. See Schedules 9 and 10 for additional financial information for our Held for Sale Business.

Total net sales for the quarter ended December 31, 2020 were $655 million, an increase of 4% compared with $630 million in the prior year period. Volumes positively impacted net sales by $63 million due to volume increases in Hexion’s global formaldehyde, specialty epoxy and base epoxy resins, and Versatic Acids™ and Derivatives businesses. Pricing negatively impacted sales by $31 million due primarily to raw material price decreases contractually passed through to customers across many businesses. Foreign currency translation negatively impacted net sales by $7 million due to the weakening of various foreign currencies against the U.S. dollar in the fourth quarter of 2020 compared to the fourth quarter of 2019.

Net loss for the Successor three months ended December 31, 2020 was $35 million compared to a net loss of $46 million in the Successor period through December 31, 2019. Total Segment EBITDA from continuing operations for the quarter ended December 31, 2020 was $74 million, an increase of $21 million compared with the prior year period, or 40 percent, primarily reflecting improved results in our adhesives and coatings and composites businesses.

Fiscal Year 2020 Results

Total net sales for the year ended December 31, 2020 were $2.5 billion, a decrease of 10% compared with $2.8 billion in the prior year period. Pricing negatively impacted sales by $182 million due primarily to raw material decreases contractually passed through to customers across many of our businesses, as well as unfavorable product mix and continued competitive market conditions in our base epoxy resins and specialty epoxy resins businesses. Volume decreases negatively impacted net sales by $70 million, which was primarily due to volume decreases in our North American and Latin America forest products resins businesses and our North American formaldehyde business driven by COVID-19’s negative impact on global demand. These decreases were partially offset by volume increases in our specialty epoxy business driven by strong global demand in wind energy. Foreign currency translation negatively impacted net sales by $42 million.

Net loss for the year ended December 31, 2020 was $230 million compared to a net income of $2,805 million for the year ended December 31, 2019. Total Segment EBITDA from continuing operations for the year ended December 31, 2020 was $294 million, a decrease of 14 percent compared with $340 million in 2019, driven primarily by the impact of the global pandemic, weaker margins in the Company’s base epoxy resins business, and temporary manufacturing outages at our Pernis site which negatively impacted our 2020 Segment EBITDA by approximately $15 million. These Segment EBITDA decreases were partially offset by improved earnings in the specialty epoxy and Versatic™ Acids and Derivatives business, as well as continued cost reduction and productivity initiatives. Fiscal Year 2020 was also negatively impacted by the absence of $18 million of Segment EBITDA in the prior year related to deferred revenue that was accelerated on July 1, 2019 as part of Fresh Start Accounting.

Segment Results

Following are net sales and Segment EBITDA by reportable segment for the Successor three and twelve months ended December 31, 2020 and Successor three and twelve months ended December 31, 2019.

(1) Intersegment sales are not significant and, as such, are eliminated within the selling segment.

Hexion Announces Site Expansion Plans

As part of its broader investment plan to drive innovation and growth in its specialty product lines, Hexion announced that it intends to expand its Portland, Oregon, manufacturing site. The Company is beginning the permitting stages of a second automated manufacturing line in Portland to support its recently-launched ArmorBuilt fire resistant wrap, a new product which greatly improves fire protection when applied to a substrate, such as wood utility poles. The first automated production line will come online at the end of the first quarter of 2021 and the second automated line is expected to start up around year-end 2021.

ArmorBuilt wrap is a proprietary wrap from Hexion that can be applied to either new or existing wood utility poles. Hexion has been providing high-performing adhesives for decades and has leveraged its expertise to develop a fire-retardant coating for more sustainable wooden utility poles that greatly improves their fire resistance. ArmorBuilt wrap has passed an industry approved wildfire simulation burn test for fire resistance.

Efficiency and Cost Savings Initiatives

In the fourth quarter of 2020, Hexion continued to implement the creation of a business services group with Capgemini to provide certain administrative functions to further improve the Company’s organizational efficiency and reduce its costs in future years. In fiscal year 2020, the Company also achieved $23 million of cost savings related to all its cost savings initiatives. At December 31, 2020, Hexion had approximately $6 million of total in-process savings that it expects to realize over the next 12 months.

https://www.businesswire.com/news/home/20210310005460/en/Hexion-Inc.-Announces-Fourth-Quarter-2020-Results

March 11, 2021

Steel Shortage Fuels Drum Shortages

By Rajesh Kumar Singh

CHICAGO (Reuters) – An aerospace parts maker in California is struggling to procure cold-rolled steel, while an auto and appliance parts manufacturer in Indiana is unable to secure additional supplies of hot-rolled steel from mills.

Both companies and more are getting hit by a fresh round of disruption in the U.S. steel industry. Steel is in short supply in the United States and prices are surging. Unfilled orders for steel in the last quarter were at the highest level in five years, while inventories were near a 3-1/2-year low, according to data from the Census Bureau. The benchmark price for hot-rolled steel hit $1,176/ton this month, its highest level in at least 13 years.

Soaring prices are driving up costs and squeezing profits at steel-consuming manufacturers, provoking a new round of calls to end former President Donald Trump’s steel tariffs.

“Our members have been reporting that they have never seen such chaos in the steel market,” said Paul Nathanson, executive director at Coalition of American Metal Manufacturers and Users.

The group, which represents more than 30,000 companies in the manufacturing sector and downstream supply chains, this month asked President Joe Biden to terminate Trump’s metal tariffs.

Domestic steel mills that idled furnaces last year amid fears of a prolonged pandemic-induced economic downturn have been slow in ramping up production, despite a recovery in demand for cars and trucks, appliances, and other steel products. Capacity utilization rates at steel mills – a measure of how fully production capacity is being used – has moved up to 75% after falling to 56% in the second quarter of 2020 but is still way below 82% in last February.

Steel shipments are up, but still below last year’s levels.

A TIGHT STEEL MARKET

Steel producer Steel Dynamics last month said it can’t get enough flat-roll sheets even for its own internal operations.

“It is very frustrating,” said Hale Foote, president at California-based aerospace parts maker Scandic Springs. “I am looking at great business…but I don’t have any material supply.”

Scandic Springs faces the risk of losing a $1 million annual contract as it can’t find a domestic supplier ready to supply 240,000 pounds of cold-rolled steel.

Indiana-based Stone City Products, which supplies components to appliance and automotive companies, is also hard-pressed to procure 2 million tons of hot-rolled steel a year for a new project.

The company has seen a dramatic turnaround in business after the pandemic lows in the second quarter of 2020 when orders plunged 50%. Its order book is now 25% above pre-pandemic levels.

To keep up, it is running its factories seven days a week and has increased headcount by 40%. But steel that used to get delivered in eight weeks last year now takes 12-16 weeks. Mills are not accepting requests for additional purchases.

“We have been hand to mouth with a lot of customer requirement,” said Stewart Rariden, the company’s president.

LUCKY TO BREAK EVEN

Domestic steel prices have risen more than 160% since last August, leaving steel consumers in a quandary – whether to absorb or pass along the increased cost.

“We’ll be lucky if we break even at this price,” said Stuart Speyer, president at Tennessee-based Tennsco. Steel costs for the manufacturer of lockers, bookcases and cabinets are up 98% in the past six months.

Whirlpool last month said increased steel costs would shave 150 basis points from its profit this year. Farm equipment maker AGCO and crane maker Terex have announced price increases to offset material costs.

In its “flash” purchasing managers survey for February, IHS Markit’s prices paid index for factories was the highest since 2011 and its gauge of prices received for finished products was the highest since 2008.

The run-up in steel prices comes at a time when the expectation of additional fiscal stimulus and a faster vaccine rollout is fueling fears of widespread inflationary pressure.

However, policymakers like Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen do not foresee a prolonged and broadbased rise in prices anytime soon with U.S. unemployment still well above pre-pandemic levels and more than 18 million Americans drawing some form of government jobless benefit.

AMERICAN VERSUS IMPORTED STEEL

Record-high prices, meanwhile, are turning out to be a bonanza for steel producers. Shares of American steel makers have gained 65% since last August. An analysis by rating agency Fitch shows U.S. steel makers enjoyed a profit margin of 45% in January. Nucor expects to post the highest-ever first- quarter profit.

Steel industry and union groups last month urged Biden to keep the steel tariffs in place, calling them ‘essential’ to the domestic industry. Steel producers are facing their own higher costs following a rise in scrap and iron ore prices.

U.S. steel prices are 68% higher than the global market price and almost double China’s, even with prices in both China and Europe up over 80% from their pandemic-induced lows.

The price gap is so wide that even with a 25% tariff, it would be cheaper to import than buy from domestic mills. The United States imported 18% of its steel needs last year.

Logistical challenges, like container shortages, and thin overseas supply are keeping imports in check. But some distributors expect imports to pick up by June if the domestic market remains tight.

Uncertainty over the tariff outlook is one factor keeping the wraps on domestic steel output.

Angela Reed, an executive at Atlanta-based steel distributor Reibus International, says an expected review of the import restrictions is delaying a ramp-up in production and a build-up in inventories as easing of the curbs will likely drive down the domestic prices.

“(People) are trying to make sure that they don’t get hung with any of the higher-priced stuff,” Reed said.

(Reporting by Rajesh Kumar Singh; Editing by Andrea Ricci) https://finance.yahoo.com/news/u-manufacturers-grapple-steel-shortages-114741157.html

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March 11, 2021

Steel Shortage Fuels Drum Shortages

By Rajesh Kumar Singh

CHICAGO (Reuters) – An aerospace parts maker in California is struggling to procure cold-rolled steel, while an auto and appliance parts manufacturer in Indiana is unable to secure additional supplies of hot-rolled steel from mills.

Both companies and more are getting hit by a fresh round of disruption in the U.S. steel industry. Steel is in short supply in the United States and prices are surging. Unfilled orders for steel in the last quarter were at the highest level in five years, while inventories were near a 3-1/2-year low, according to data from the Census Bureau. The benchmark price for hot-rolled steel hit $1,176/ton this month, its highest level in at least 13 years.

Soaring prices are driving up costs and squeezing profits at steel-consuming manufacturers, provoking a new round of calls to end former President Donald Trump’s steel tariffs.

“Our members have been reporting that they have never seen such chaos in the steel market,” said Paul Nathanson, executive director at Coalition of American Metal Manufacturers and Users.

The group, which represents more than 30,000 companies in the manufacturing sector and downstream supply chains, this month asked President Joe Biden to terminate Trump’s metal tariffs.

Domestic steel mills that idled furnaces last year amid fears of a prolonged pandemic-induced economic downturn have been slow in ramping up production, despite a recovery in demand for cars and trucks, appliances, and other steel products. Capacity utilization rates at steel mills – a measure of how fully production capacity is being used – has moved up to 75% after falling to 56% in the second quarter of 2020 but is still way below 82% in last February.

Steel shipments are up, but still below last year’s levels.

A TIGHT STEEL MARKET

Steel producer Steel Dynamics last month said it can’t get enough flat-roll sheets even for its own internal operations.

“It is very frustrating,” said Hale Foote, president at California-based aerospace parts maker Scandic Springs. “I am looking at great business…but I don’t have any material supply.”

Scandic Springs faces the risk of losing a $1 million annual contract as it can’t find a domestic supplier ready to supply 240,000 pounds of cold-rolled steel.

Indiana-based Stone City Products, which supplies components to appliance and automotive companies, is also hard-pressed to procure 2 million tons of hot-rolled steel a year for a new project.

The company has seen a dramatic turnaround in business after the pandemic lows in the second quarter of 2020 when orders plunged 50%. Its order book is now 25% above pre-pandemic levels.

To keep up, it is running its factories seven days a week and has increased headcount by 40%. But steel that used to get delivered in eight weeks last year now takes 12-16 weeks. Mills are not accepting requests for additional purchases.

“We have been hand to mouth with a lot of customer requirement,” said Stewart Rariden, the company’s president.

LUCKY TO BREAK EVEN

Domestic steel prices have risen more than 160% since last August, leaving steel consumers in a quandary – whether to absorb or pass along the increased cost.

“We’ll be lucky if we break even at this price,” said Stuart Speyer, president at Tennessee-based Tennsco. Steel costs for the manufacturer of lockers, bookcases and cabinets are up 98% in the past six months.

Whirlpool last month said increased steel costs would shave 150 basis points from its profit this year. Farm equipment maker AGCO and crane maker Terex have announced price increases to offset material costs.

In its “flash” purchasing managers survey for February, IHS Markit’s prices paid index for factories was the highest since 2011 and its gauge of prices received for finished products was the highest since 2008.

The run-up in steel prices comes at a time when the expectation of additional fiscal stimulus and a faster vaccine rollout is fueling fears of widespread inflationary pressure.

However, policymakers like Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen do not foresee a prolonged and broadbased rise in prices anytime soon with U.S. unemployment still well above pre-pandemic levels and more than 18 million Americans drawing some form of government jobless benefit.

AMERICAN VERSUS IMPORTED STEEL

Record-high prices, meanwhile, are turning out to be a bonanza for steel producers. Shares of American steel makers have gained 65% since last August. An analysis by rating agency Fitch shows U.S. steel makers enjoyed a profit margin of 45% in January. Nucor expects to post the highest-ever first- quarter profit.

Steel industry and union groups last month urged Biden to keep the steel tariffs in place, calling them ‘essential’ to the domestic industry. Steel producers are facing their own higher costs following a rise in scrap and iron ore prices.

U.S. steel prices are 68% higher than the global market price and almost double China’s, even with prices in both China and Europe up over 80% from their pandemic-induced lows.

The price gap is so wide that even with a 25% tariff, it would be cheaper to import than buy from domestic mills. The United States imported 18% of its steel needs last year.

Logistical challenges, like container shortages, and thin overseas supply are keeping imports in check. But some distributors expect imports to pick up by June if the domestic market remains tight.

Uncertainty over the tariff outlook is one factor keeping the wraps on domestic steel output.

Angela Reed, an executive at Atlanta-based steel distributor Reibus International, says an expected review of the import restrictions is delaying a ramp-up in production and a build-up in inventories as easing of the curbs will likely drive down the domestic prices.

“(People) are trying to make sure that they don’t get hung with any of the higher-priced stuff,” Reed said.

(Reporting by Rajesh Kumar Singh; Editing by Andrea Ricci) https://finance.yahoo.com/news/u-manufacturers-grapple-steel-shortages-114741157.html

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