ASA MATERIALS MARKET DIGEST | 1 © 2013 American Supply Association. All Rights Reserved.

ASA MATERIALS MARKET DIGESTFebruary, 2013 • 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.

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Manufacturing Seen Sluggish in 2013

The latest outlook from the Manufacturers Alliance for Productivity and Innovation sees manufacturing production growing merely two percent in 2013 with just 14 of 24 industries tracked by MAPI forecasted to expand. Slow growth is attributed to continued overall economic stagnation coupled with tough times for consumers.

According to MAPI, manufacturing enjoyed a robust 10 percent gain in 1Q12, but then production growth plummeted to just one percent in the second quarter, declined one percent in the third quarter, and just barely gained that back with underwhelming growth in the fourth quarter.

“The outlook is for modest GDP growth throughout 2013, but it will not be until the second half of 2014 that the economy will grow at what could be considered a moderate pace,” explained Daniel Meckstroth, MAPI chief economist. “Consumers continue to deleverage from debt and, therefore, can only increase spending commensurate with after-tax income adjusted for inflation. Less unemployment insurance income and increases in state and local taxes have eaten away at personal income gains. And while credit is more available, it is not plentiful. As a result, consumer spending can increase only at a sluggish pace.”

Another indicator, the latest NAM/Industry Week Survey of Manufacturers, found only 51.8 percent of manufacturers optimistic about their company’s outlook at the end of 2012. That was down from a peak of 88.7 percent compared to last March.

Members of the Institute for Supply Management (ISM) were a little more confident. According to the latest ISM survey, 62 percent of manufacturers expect revenues to be higher this year than in 2012, while purchasing and supply executives forecasted a 4.6 percent increase in revenues. Capital expenditures are expected to increase 7.6 percent in the manufacturing sector.

Carbon Steel

Steel consumers are said to be holding off on purchases following end-of-month attempts by top U.S. steel makers to impose rate increases of as much as 8 percent despite slack demand. Whether these rates will stick remains to be seen.

Global steel production grew 1.2 percent in 2012, according to the World Steel Association. Most of the increase came from China, where production increased 3.1 percent.

The global steel industry will have 479 million tons of overcapacity this year, according to Ernst & Young. The firm calculates the world’s capacity utilization rate has dropped

below 80 percent, which is down from around 90 percent prior to the financial crisis in 2008.

U.S. service centers saw shipments decline 14.4 percent from December, 2011, according to data from the Metals Service Center Institute (MSCI). For all of 2012, steel shipments were up 1.3 percent from 2011. Steel product inventories for December increased 2.4 percent compared to the prior year and 4.6 percent from the previous month. At the current shipping rate, this represents 3.4 months of supply in inventory, an increase of 19.6 percent from a year ago.

Steel imports were down 14 percent in December, 2012, and finished steel imports dropped 19 percent from November, according to the American Iron and Steel Institute (ANSI). Preliminary total and finished steel imports for 2012 are up 17 and 18 percent, respectively, versus 2011. Finished steel import market share in December was an estimated 20 percent and is estimated at 24 percent for all of 2012. Major products with significant full-year import increases in 2012 compared to 2011 include line pipe (+40 percent), standard pipe (+15.7 percent) and oil country goods (+24 percent).

Stainless Steel

MEPS International forecasts rising world stainless steel prices in January, 2013, on the back of recent increases in raw material costs. Speculative buying by some traders is expected to add to the upward pressure on transaction values, in the near-term. Growing end-user demand, particularly in China, could also help to lift prices. Nickel values are expected to climb in 1Q13; however, nickel is expected to be in surplus over the next 12 months, and this is likely to weigh on prices as the year progresses.

Price hikes for commodity-grade stainless enacted at the beginning of January appear to be sticking, following higher nickel prices in December. Among the major producers announcing an increase in surcharges for grades 304 and 316 was Outokumpu Stainless USA. That is the new name from ThyssenKrupp Stainless USA following the completion of the merger between stainless producer Outokumpu Oyj and ThyssenKrupp Stainless’ parent company, Inoxum Group.

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Outokumpu Stainless USA decreased its surcharges for Type 430 stainless by 1.9 percent. Type 430 does not contain nickel.

U.S. stainless steel consumption rose 13.7 percent in October, 2012, compared to October, 2011, according to the latest data available from the Specialty Steel Industry of North America (SSINA), and stainless imports rose 12 percent that same month.

Tubular Products

Prices for carbon steel imports from China appear to be rising, but the increases are characterized as “a bit shaky,” according to the 1Q13 IPD Commodity Reports just released by the American Supply Association’s (ASA) Industrial Piping Division (IPD). In general, pipe and tube prices are soft due to weak demand and oversupply from both domestic and foreign sources.

OCTG prices continued to weaken in January amid cutbacks in drilling, high imports and a glut of supplies.

Another OCTG pipe mill will be adding to the market’s overcapacity. USA Investment Group LLC plans to build a $200 million manufacturing facility in McCleary, Washington, with production set to begin in late-2014.

Also, Evraz NA announced it will expand its heat treat capabilities by 150 percent and threading capacity by about 40 percent at its OCTG plant located in Calgary, Alberta.

JMC Steel Group is challenging a U.S. International Trade Commission (ITC) ruling that imports of circular-welded carbon-quality steel pipe from India, Oman, the United Arab Emirates (UAE) and Vietnam are not hurting the domestic industry, according to a U.S. Court of International Trade filing.

The ITC also faces a challenge from the UAE government on subsidy margins ranging from 2.06 percent to 6.17 percent for UAE shipments. Also, Turkish pipe maker Borusan Mannesmann Boru Sanayi ve Ticaret A.S. is appealing to the U.S. Court of International Trade a decision by the U.S. Commerce Department’s International Trade Administration (ITA) to assess a 3.55 percent final weighted-average dumping margin on imports of circular-welded carbon steel pipe and tube.

A trade case against South Korean OCTG imports appears to be looming. South Korean imports of welded pipe jumped 31.7 percent through 11 months of 2012. U.S. Steel and Tenaris SA are among domestic pipe manufacturers said to be contemplating action.

U.S. Pipe & Tube ImportsLanded duty-paid value (in $1,000s)

Annual & Year-To-Date Data (Jan. – Nov. 2012) 2011 YTD 2011 YTD 2012 % Change YTD % Change 2007-11

Total Carbon and Alloy Pipe & Tube 9,898,742 9,045,667 11,682,942 29.2% 5.8%

Carbon Seamless Tubular Products (Other than OCTG) 1,965,444 1,791,114 2,146,274 19.8% 45.7%

Carbon Seamless OCTG 2,612,205 2,361,511 3,076,491 30.3% 58.9%

Welded Tubular Products (Other than OCTG) 2,253,821 2,055,750 2,878,171 40.0% -49.4%

Welded OCTG 1,556,185 1,473,045 1,879,406 27.6% 153.0%

Flanges, Fittings & Tool Joints 1,239,362 1,119,985 1,472,008 31.4% 29.0%

Stainless Seamless Tubular Products (Jan-Jul 2012) 920,190 523,279 545,243 4.2% -3.1%

Stainless Welded Tubular Products (Jan-Jul 2012) 438,209 249,025 279,300 12.2% -30.9%

Stainless Flanges, Fittings & Tool Joints (Jan-Jul 2012) 558,825 290,626 395,785 36.2% 2.8%

Source: U.S. International Trade Commission / U.S. Department of Commerce

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Copper

Most copper analysts are predicting an increase in copper prices for 2013, though not approaching the all-time highs of 2011. Halligarten & Co. sees prices in the range of $3.50-3.80/lb. throughout the year. Citigroup forecasts an average of $3.67/lb., while Morgan Stanley pegs it higher at $3.88/lb. on average. At the moment, global copper production appears to be in deficit, although this could change as mining projects come on-line throughout this year.

Copper prices will grow 12 percent in 2013 “thanks to tight supplies,” so predicts The Economist magazine in its special year-end issue, “The World in 2013.”

A different outlook comes from Chilean copper commission, Cochilco, which forecasts average copper prices for 2013 at $3.57/lb., which is less than 2012’s average at $3.61/lb. Cochilco is predicting a refined copper market surplus of 56,000 tons. The London Metal Exchange (LME) price for cash copper was $3.71 on January 31st.

Copper and brass shipments from service centers fell 1.1 percent in 2012, according to the Copper and Brass Servicenter Association (CBSA). Copper shipments rose 4.4 percent, mainly due to an 8.3 percent increase in copper rod.

Scrap

AMM’s Midwest Ferrous Scrap Index settled sideways for the second consecutive month in January. AMM attributed the lack of movement to steady inflows, thanks to a lack of snow in the Midwest, and the inability to ship scrap outside the region, thanks to barge restrictions on the low-volume Mississippi River. An AMM survey of dealers shows the same sluggish trend continuing into February. Despite the sluggish start, some industry observers believe scrap prices will turn up soon.

Copper-based scrap jumped 5.3 percent in December, according to the U.S. Commerce Department’s latest Producer

Price Index. The PPI for iron and steel scrap rose 0.9 percent in December over November but was down 15.5 percent compared with December, 2011.

Stainless scrap prices were still heading upward in the first part of January, thanks to rising nickel prices. ASA’s 1Q13 IPD Commodity Reports notes, “Stainless steel scrap prices have increased around 20 percent since early November, which is an indication of improved, underlying demand.” But, at the time of this writing, industry sources report stainless scrap has started to decline heading into February.

Plastics

Resin prices are on the rise for PE, PP, PS and PVF in the first quarter, according to Plastics Technology magazine. The rising prices are being driven by tighter availability coupled with higher costs of feedstocks.

The commodity engineering resins – ABS, nylons 6 and 66, and PC – are also seen to be going up in price, according to industry consultants for Plastics Technology.

Plastics Technology also reports recycled resin prices are headed in the opposite direction. An exception may be recycled HDPE, for which prices were firming at year-end. Plastics pipe sales were high in early winter as warm weather permitted construction projects to continue that would normally have been left until spring.

News of Note

ASA’s PVF distributors enjoyed a good – though not great – year in 2012. The association’s monthly report of sales volume through December shows PVF distributor members gained an average of 7.4 percent in sales for the calendar year compared with 2011. This compares with a 5.6 percent increase for ASA PHCP distributor members and a 4.6 percent increase reported by companies that carry a blend of PHCP and industrial PVF products.

The monthly Economic Indicators Report (EIR) from the Industrial Supply Association (ISA) showed a slight contraction in member activity for December, particularly among manufacturers. At 49.5 percent, the ISA Manufacturers Index fell below 50 for the first time in 2012, while the distributor index fell to 50.5 percent from 57.9 percent the previous month. For each index, a reading above 50 percent indicates expansion, and a reading below 50 percent indicates contraction. According to John Buckley, ISA’s executive vice president, “Much of the decline is likely seasonal in nature, reflecting a traditional slowdown during the holiday season. As a whole, 2012 was a good year for ISA members.”

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Houston pipe distributors Merfish Pipe & Supply Co. and Pipe Exchange, Inc. have been acquired by One Equity Partners (OEP), the private investment arm of JP Morgan Chase & Co. Gerald Merfish has been named CEO of the two companies, and Dolty Cheramie will continue as president of Pipe Exchange.

Stainless Pipe & Fitting Supply Co., Inc. of Santa Fe Springs, California, will attempt to liquidate its assets after filing a Chapter 7 petition in a federal bankruptcy court in California. The company cited assets of less than $50,000 and liabilities between $101,000 and $500,000.

Prices for construction materials inched down in December, closing out a year of relatively subdued changes in both materials costs and bid prices, according to an analysis of the latest Producers Price Index (PPI) by the Associated General Contractors of America (AGCA). “Moderate price swings for several materials last year gave contractors some breathing room, but future price spikes could push many firms into the red,” said Ken Simonson, the chief economist for the construction trade association. “Contractors still have not recovered the cost increases they had to absorb in 2010 and 2011.” Refer to the accompanying PPI chart that appears on the last page of this month’s report for more data on key industry products.

Waste paper is the largest U.S. export to China. Keep America Beautiful, Inc., reports approximately 40 percent of U.S. waste paper is shipped abroad, especially to China, which doesn’t have enough forests to feed the country’s demand for paper. Recyclable waste is the largest U.S. export to China, according to some experts. Without demand from China and other foreign consumers, most experts think the price of recyclable paper would drop too low to make the business profitable.

About Jim Olsztynski

For 35 years, Jim Olsztynski has covered the plumbing-heating-cooling-piping and industrial and mechanical pipe-valves-fittings (PHCP-PVF) industry as an award-winning journalist and editor for a variety of industry publications. He is an accomplished author having published several Essentials courses for ASA University as well as his own book, entitled: Bumps on the Road to Riches: How to Avoid Big Mistakes that Kill Small Businesses. Jim has also made numerous appearances and presentations about the industry and its rich history before live audiences as well as on television.

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Producer Price Index - Key Industry Products

Pipe, Valves & FittingsProduct

CodeNovember

2012December

2012% Change

% ChangeDecember

2011

Metal valves, except fluid power 1149-02 279.3 279.9 0.2 3.6

Gates, globes, angles & check valves 1149-0201 315.6 315.5 0.0 2.8

Ball valves 1149-0202 328.8 329.4 0.2 6.3

Butterfly valves 1149-0203 196.8 196.7 -0.1 2.5

Industrial plug valves 1149-0204 200.2 202.0 0.9 -4.1

Plumbing & heating valves (low pressure) 1149-0205 275.6 N/A N/A N/A

Solenoid Valves 1149-0208 291.8 293.1 0.4 6.6

Other industrial valves, including nuclear 1149-0209 257.9 259.1 0.5 3.0

Automatic valves 1149-0211 160.5 160.9 0.2 3.5

Steel pipe & tube 1017-06 263.9 266.4 0.9 -6.1

OCTG, standard, line pipe, carbon 1017-0671 105.5 106.0 0.5 -11.5

Steel pipe & tube, alloy 1017-0673 105.0 104.5 -0.5 -4.7

Steel pipe & tube, stainless steel 1017-0674 103.8 103.9 0.1 -1.2

Metal pipe fittings, flanges and unions 1149-0301 302.0 297.6 -1.5 2.2

Copper & copper-base alloy pipe and tube 1025-0239 223.2 221.5 -0.8 -1.7

Plastic pipe 0721-0603 107.1 107.1 0.0 12.4

Plastic pipe fittings & unions 0721-0604 137.8 137.7 -0.1 3.3

Plumbing Fixtures, Fittings & Trim 1054-02 281.1 281.1 0.0 1.9

Vitreous china fixtures 1052 146.9 147.8 0.6 1.7

Bath & shower fittings 1054-0211 228.0 228.0 0.0 1.8

Lavatory & sink fittings 1054-0218 139.6 139.7 0.1 2.0

Miscellaneous brass goods 1054-0223 290.5 290.4 0.0 1.9

Enameled iron & metal sanitary ware 1056 201.7 201.7 0.0 0.9

Steam & Hot Water Equipment 1061 263.0 263.0 0.0 3.5

Cast iron heating boilers, radiators and convectors 1061-0106 166.5 166.5 0.0 3.1

Steel heating boilers, all classes 1061-0112 166.4 166.4 0.0 4.9

Domestic water heaters 1066-01 340.7 340.7 0.0 5.2

Electric water heaters 1066-0101 320.8 320.8 0.0 4.3

Non-electric water heaters 1066-0114 215.3 215.3 0.0 5.9

Warehousing, Storage & Related Services 32 97.2 97.3 0.1 -3.0

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