The industry shifts gears

Few commodities capture consumer attention more than gasoline. When the price is high, the angst is palpable, magnified by fuel station signs that announce the price to every motorist who drives by (and especially those who stop to fill up). When the price falls, the effect is a pay raise and no small amount of joy in the minds of automobile owners everywhere.

The raw material, of course, is petroleum, and few commodities have had a larger presence in the tube and pipe industry over the last decade. During the 1980s and 1990s, the Organization of the Petroleum Exporting Countries (OPEC) tried to keep the price above $20 per barrel, although as recently as 1998 the price fell to about half that.

That era wouldn’t last. The crude oil price crept up in the early 2000s, and from April 2005 until April 2015 it rarely traded at less than $50 per barrel, according to the U.S. Energy Information Administration. Flush with cash, the industry invested in exploration. Technology improvements, specifically hydraulic fracturing and horizontal drilling, went a long way in increasing domestic oil output.

Commodities follow a predictable dichotomy: Low prices cause suppliers to leave the market, which leads to a shortage, which drives up the price; high prices cause suppliers to enter the market, leading to a supply glut, which drives down the price. The 2005-2015 era followed this pattern in extremes. It was a lengthy period of high prices and unflagging demand. The additional exploration and drilling activities resulted in excess domestic supply and falling prices. In an effort to recapture lost market share, OPEC put an end to all production limits, and when the bottom fell out, it fell out in a hurry. Since August 2015 the price hasn’t exceeded $50 per barrel, and it spent most of December in the $30s. In late January (press time), it slipped below $30 per barrel. The rig count in North America stood at 887, down from 2,065 a year earlier.

Other challenges are lurking. In Europe, some of the biggest troubles—the sovereign debt crisis, the ensuing recession, and questions about Greece’s viability as a member of the union—have faded, but they have been replaced by the unending war being fought across large portions of Syria and Iraq and the vast refugee crisis that war has caused. The latest Ifo Business Climate Survey revealed that business confidence in Germany dropped from 108.6 in December to 107.3 in January.

Stocks prices in China tumbled, and the Dow Jones Industrial Average isn’t doing too well either. The PMI®, which was in positive territory in October at 50.1 percent, fell to 48.6 percent in November and 48.2 percent in December.

On Jan. 27 the Federal Reserve Board announced its decision make no change to interest rates. Citing a mixed bag of improvements—the labor market, household spending, and business fixed investment—alongside areas that are not doing as well, including exports, inventory investment, and overall economic growth as measured by gross domestic product (GDP), the Fed chose to keep the target for the federal funds rate at 1/4 to 1/2 percent. The GDP in Q3 2016 wasn’t necessarily bad at 2.0 percent, but it was about half of the growth rate of the second quarter: 3.9 percent. An interest rate this low is a clear signal that the Fed is cautious about the state of the economy.

Still, good news is not hard to find. The Conference Board’s Consumer Confidence Index® increased in December to 96.3 and again in January to 98.1 Its Present Situation Index was unchanged at 116.4, but its forecast, its Expectations Index, increased from 83 to 85.9. The University of Michigan’s surveys of consumers had broadly similar results. Its index of current economic conditions slipped from 108.1 to 105.1, but the overall confidence number increased, buoyed by an increase in consumer expectations. Considering that consumer activity accounts for about 70 percent of GDP in the U.S., this is welcome news.

Furthermore, the focus has shifted from energy to automobiles. In the U.S., the automobile industry sold more cars in 2015 than in any year since 2000. That good news is compounded by more good news for automakers: falling fuel prices encouraged sales of not-so-fuel-efficient vehicles, specifically pickup trucks and SUVs, which have higher margins than passenger cars.

This doesn’t mean that the energy industry is dead, and it doesn’t mean that the automobile industry is the only driving force in manufacturing, but it does mean that the opportunities for tube and pipe producers and fabricators have changed.

Visitors to Tube® Düsseldorf, International Tube and Pipe Trade Fair interested in learning more about the automotive industry will see no shortage of advanced materials developed specifically for tube and profiles automotive applications. Tubing and roll formed profiles have a place in nearly every road vehicle, and the materials and processes to make them are modified and updated continuously to reduce costs and weight.

Weight reduction improves fuel economy, which is always an important issue, regardless of low fuel prices. Reducing vehicle weight improves fuel efficiency and reduces emissions, both of which are goals stipulated by legislation on both sides of the Atlantic.

Reducing weight is one thing; reducing weight while maintaining enough component strength to comply with safety standards is something else altogether. Some materials, such as carbon fiber and magnesium, are limited by cost, leaving the door open for aluminum and steel. High-strength steels (HSSs) play an increasingly central role in reducing vehicle weight. Some of these new alloys and related processes combine improved strength and ductility, completing a trifecta: the material is lighter, stronger, and more formable the conventional steels. These materials are especially important in achieving the energy-absorbing characteristics necessary for crash-relevant components.

Three German manufacturers—ThyssenKrupp, Benteler, and Salzgitter—have been developing new alloys to help automakers meet these goals.

ThyssenKrupp’s Take

Hot working involves heating the workpiece until it is red-hot, shaping it in a press, and quenching it to produce a high-strength, lightweight part. In experimenting with HSSs for its InCar plus project, ThyssenKrupp used hot working to develop automobile components made of new materials such as dual-phase steel and ultrahigh-strength manganese-boron steel:

• The company manufactured B-pillars, which are stressed heavily in side crashes, using cold- and hot-working processes. The hot process allowed the use of stronger, thinner materials, achieving cost and weight advantages compared to conventional components.
• A front bumper frame made of hot-worked manganese-boron steel weighed almost 20 percent less, and cost significantly less, than a similar aluminum component.
• In addition to being lighter, a hot-worked A-pillar was more slender than its conventional counterpart, improving the driver’s view.
• A camshaft with an integrated air-and-oil separation system rendered the conventional external oil separator unnecessary and freed up space in the engine.
• The company developed shock absorber tubes that can be adapted to fit a particular installation space, as well as shock absorber tubes made from stainless steel for extreme road and weather conditions.

Benteler’s Best

Benteler has made quite a bit of progress in making tubes for heat transfer and high-pressure applications:

• One project is aimed at heat recovery from the automobile exhaust system via loop heat pipes. A system for heating the passenger cabin already has been tested on an experimental vehicle in practical application and on a standardized dynamometer. This system eliminates the need for an auxiliary heater, reducing CO₂ emissions.
• Another concept, named varID^®, produces tubes with variable wall thickness via a drawing process. According to the company, this reduces the weight of sway bars up to 50 percent.
• The trend toward higher fuel injection pressures in diesel engines requires higher-strength injection tubes. The company was able to increase the maximum system pressure in diesel injection tubes by about 2,900 pounds per square inch by using a new material and optimizing the manufacturing process.

Salzgitter’s Story

Salzgitter AG’s corporate-wide vehicle program, Automotive Initiative, is working on new steel materials, cold-drawn seamless and welded precision steel tubes, prototyping, die construction, and finished internal high-pressure formed components.

Salzgitter’s HSD^® (high strength and ductility) steel, an iron-manganese-aluminum-silicon material, is suitable for manufacturing hot strip, cold strip, and welded precision steel tubes. A new generation of dual-phase steels likewise is suitable for components with demanding degrees of deformation, for example roof frames, and for parts that need high yield strength or have special crash requirements.

• A sway bar made of solid material, 0.87 in. dia. and 55.12 in long, weighs almost 9 lbs. A sway bar of the same length and 0.93 in. dia., made from a precision steel tube with 0.14 in. wall thickness, weighs less than 5.5 lbs., a weight reduction of roughly 40 percent.
• The company says it achieved weight reductions between 20 percent and 50 percent in gear shafts made with precision steel tubes.
• Accommodating the trend toward higher injection pressure for diesel engines, the company developed fuel injection tubes that can withstand 20 percent more pressure than conventional lines with no change in dimensions or wall thickness.

The TD^® (tailor-drawn tube) process is another lightweight construction concept that allows engineers to adapt the wall thickness along the tube’s length. This drawing process guarantees evenly homogenous mechanical characteristics over the entire length of the component, according to Salzgitter. The company estimates a potential weight reduction of roughly 20 percent, depending on the initial construction.

Good News Upstream

Just as fabricators have adjusted business plans in light of falling oil prices, so too have tube and pipe producers. Despite the recent developments in the energy industry, the overall outlook remains positive. Except for a downturn in 2009, global production of steel tube has been moving in one direction only: upward. According to the German Steel Tube Association (GSTA), steel tube production increased 7 percent in 2014 to reach a record 183 million tons.

This increase was due, in particular, to the high production rate in China. In 2014 the country’s steel output increased 11.6 percent to 98 million tons; in the same year it produced 54 percent of the world’s steel tubes. China is even more dominant when it comes to seamless hot-rolled steel tubes, producing two-thirds of the world’s total. Japan’s output increased 7.9 million tons for 3 percent growth. German steel tube producers experienced the same level of growth as Europe as a whole: 4 percent.

The main reason for the rise in German steel tube production was an increase in domestic demand. Germany’s foreign trade surplus experienced a decline as exports dropped 12 percent to 2.6 million tons. At the same time, imports went up 5 percent, reaching 2.1 million tons. This resulted in supplies for the German market rising to 2.4 million tons – up 18 percent.

Not all industry segments benefitted from the recovery. Gains were made by welded steel pipe manufacturers, while seamless steel producers experienced a decline. According to the GSTA, the poor results in this market segment were due to a substantial drop in crude oil prices, particularly during the second half of 2014.

Prices in 2014 varied. Whereas prices went up for large-diameter tubes, they went down for seamless tubes. For precision steel tubes, prices mainly held steady.

According to Salzgitter AG, 2014 was marked by rising energy requirements in the Brazil, Russia, India, and China; progress toward energy self-sufficiency in the U.S.; and a decline in energy demand in the industrial nations, resulting from efficiency improvements. These developments meant that growth opportunities for the tube industry largely shifted to regions outside Western Europe. In addition, overcapacity in the steel tube market led to stronger competition in some markets.

News from the Energy Market. According to Benteler, positive signals came from the important oil country tubular goods market in the U.S. The considerable increase in oil exploration and production led to rising demand in the middle of 2014, while U.S. antidumping measures restricted supply, leading to price increases in the second half of the year. According to a forecast published by Benteler, the production of shale oil is expected to rise more than 100 percent between 2012 and 2025.

That played out differently than anticipated. Toward the end of 2014, the drop in oil prices began to cause a tangible reduction in demand. Numerous gas and oil exploration projects throughout the world were postponed, and some were abandoned.

This isn’t to say that all projects dried up. The Black Sea pipeline project was resumed, and work on the Trans-Adriatic Pipeline continues. Salzgitter won a bid for 167 miles of pipe and more than 1,500 bends for the pipeline, which will transport natural gas from the Caspian Sea to Europe.

Despite projects and orders such as these, the net effect was a decline in the energy industry. Reduced demand coupled with newly created production capacities, particularly in Asia, led to greater price pressure and thus to a massive decline in revenue.

A Positive Outlook Nonetheless. “The steel industry is going through a global crisis which even the German steel industry won’t be able to avoid,” stated GSTA President Hans Jürgen Kerkhoff in December 2015. He added that “weak economic figures in the steel industry are in contrast with the prospects of its big customer industries.”

A positive picture continues to emerge and inspire confidence, partly from performance indicators and partly from the forecasts of many steel processing companies. In the coming year, growth is expected in Germany from the automotive and construction industries, while mechanical engineering and construction are stabilizing.

Tube Düsseldorf visitors can visit these companies at their respective booths:

• Benteler: Hall 4, booth B42
• Salzgitter: Hall 4, booth H42
• ThyssenKrupp: Hall 3, booth C28

The Messe Düsseldorf staff can be reached at info@mdna.com.