With so much of the tool steel produced destined for the automotive and industrial machining market it is no surprise that demand has dropped dramatically in late 2008 and 2009. Indeed the surprise is that more producers like Crucible have not gone into bankruptcy as sales and prices have fallen in an unprecedented manner. Figures on current tool steel consumption are hard to come by but the SSINA – Specialty Steel Industry of North America estimates alloy steel imports have fallen 53.7% in January 2009 compared to 2008 and typically imports make up about 38% of consumption for specialty steels taken as a whole. Domestic producers will have fared no better. The American Machine Tool Distributors Association estimates consumption is down 68.6% year to date 2009 compared to 2008. Anecdotal evidence suggests demand has not picked up during the second quarter as prices continue to remain depressed even though some producers such as Universal Stainless & Alloy have put through 5% price increases to mitigate very low capacity utilization rates.
GM is planning prolonged summer shut downs in 13 of its 20 plants according to CNN dashing faint hopes of an early improvement in demand from the automotive sector. Fortunately for the industry raw material prices have fallen too. Molybdenum and tungsten prices are both down illustrating the interconnected nature of the markets for these metals. Only molybdenum has shown any signs of firming over the last month purely on the back of Chinese demand, where consumers appear to be re-stocking at prices one third of the level they were last summer.
The tool steel supply chain has been hit hard by the combination of rapidly falling prices and a dramatic drop in demand. Tool steel stock levels are traditionally slower moving than more commodity steels and non ferrous metals like aluminum. Distributors have been particularly badly hit by stock write downs and financing of slow moving stock. Unfortunately it does not look positive for an early improvement.