Surcharge flood sends some OEMs to high ground
December 11, 2007
The high cost of stainless steel—especially the spikes caused by nickel surcharges—has caused many tube manufacturers' customers to look for alternative alloys. What can tube producers expect after switching from a 300-series stainless to a less expensive alloy? It depends on the new alloy and the production process.
To say the last several years have been chaotic would be an understatement. It started with the bursting of the tech stock bubble in 2000, and then it was one thing after another. The recession of early 2001 led to a prolonged slump in consumers' durable goods purchases; the terrorist attacks of 2001 hammered the domestic airline and nonresidential construction industries; the collapse of Enron and WorldCom left quite a few investors and shareholders wondering where their savings went and where the next corporate implosion would occur.
Fast on the heels of these events were rapid increases in industrial activity in many parts of the world. Construction in the Far East took off; in 2003 China alone consumed half of the world's cement and 36 percent of the world's steel. Activity surged in oil- and gas-producing regions as well. According to Baker Hughes International, the worldwide rotary rig count increased nearly 85 percent from January 2001 to September 2007. These trends were accompanied by waves of economic activity that spread throughout much of the industrialized world.
While the accelerating rate of economic activity boosted the sales—and profits—of nearly every tube producer, it also cut into the availability of many commodities and put a tremendous amount of upward pressure on raw material prices. Companies in the middle of the durable goods supply chain—between the mills and the OEMs—were squeezed repeatedly. It seemed that the smaller they were, the harder they were squeezed, especially metal fabricators and tube and pipe producers. This led to no end of mergers, acquisitions, buyouts, and plant closings.
It's not over—more changes are coming. The rapid run-up in prices, combined with surcharges on some specific metals such as nickel, have encouraged many OEMs to look for alternative materials for corrosion-resistant products. The same trends have left many stainless steel tube producers asking the only sensible question: "What's next?"
Founded in 1971, Scientific Tube Inc. is a specialty tube producer, one that makes small-diameter tubing in a variety of corrosion-resistant metals.
"We manufacture millions of feet of tubing annually from 300- and 400-series stainless steel," said Nicholas Cirenza, Scientific's vice president of sales. "We also work with some more exotic materials, like titanium, and Incoloy®, " he said. Scientific Tube makes small-diameter tubing from 0.25 inch to 2.25 in. diameter in wall thicknesses from 0.010 to 0.065 in round, flat oval, and various other shapes.
"Scientific Tube provides tubing to the automotive, heating and cooling, and appliance industries," Cirenza continued. "We can also provide annealing and cut-to-length services, but we do not do any fabrication—we leave that to our customers," he said.
Some of these customers have been searching for ways to cut costs. One cost-cutting tactic that has caught on recently is substituting a less expensive alloy for a more expensive one.
"Some of our customers are experimenting with substituting 304-series stainless steel with 200-series stainless steel," said Cirenza.
"The interest is driven largely by surcharges," he said. For instance, in June the surcharge on 201 stainless steel was $1.31 per pound. For 304L stainless steel, the surcharge was $2.21 per lb. The difference is $0.90 per lb.
Although recently the surcharges on both alloys have fallen and the difference has decreased to $0.47 per lb., nobody knows what next month will bring.
Changing. The main difference in chemistry between the 200 series and 300 series is the nickel and manganese content. For the 200 series, the nickel content is 3.50 percent to 5.50 percent, and the manganese content is 5.50 percent to 7.50 percent. In the 300 series, the manganese content is a maximum 2 percent and the nickel is between 8 percent and 12 percent.
The major mechanical difference is that the 200 series has a 40 percent higher yield strength than the 300 series does. The corrosion resistance of the two is comparable.
Staying the Same. What can stainless steel tube producers expect from this alloy, in terms of formability? This is where the good news comes in. Depending on the processes and the finished form the tube has, forming 200-series stainless into a tube is similar to forming 300-series stainless.
Scientific Tube was pleasantly surprised to find no forming differences for some round sizes it manufactures when it ran some tests using 201 stainless steel. The material ran smoothly without any changes to the tooling setup, feed rate, or other forming parameters.
"We did make an adjustment to the weld power," said Claude Bianchi, Scientific Tube's director of manufacturing. "However, this had nothing to do with the material's chemistry characteristics," he added. "It was simply because our customer switched to a lighter-gauge material. We would have lowered the weld power if we switched to a lighter gauge of the same material."
This doesn't mean that every stainless steel tube application will run flawlessly, but it does show that every once in a while tube producers get a break.