American Metal Market: U.S. producers of tin mill products are seeking contract price increases for 2009, trying to eliminate a disparity that exists between large- and small-volume buyers in a market that is expected to be stronger than most for steel.
There are only two large producers of tin mill products in North America: U.S. Steel Corp., Pittsburgh, and ArcelorMittal USA Inc., Chicago. Other companies, notably Ohio Coatings Co., Yorkville, Ohio, and USS-Posco Industries Inc., Pittsburg, Calif., apply tin coating to substrate supplied by their parent companies.
Tin product manufacturers in years past would make annual price announcements on tin products in the late fall, with the new prices going into effect the following January. More recently, they have abandoned that practice and taken to negotiating prices with individual customers. Thus, tin product pricing becomes more difficult to gauge.
ArcelorMittal SA, Luxembourg, said during its second-quarter conference call earlier this year that it likely would seek price hikes of around 30 percent from U.S. customers for 2009. Company executives didn't respond to requests for comment on how those negotiations played out, while U.S. Steel declined comment, citing company policy not to publicly discuss price contract talks.
However, interviews with multiple industry sources, indicate that mills have been successful in pushing through price increases ranging from 15 percent to more than 35 percent on many contracts.
"There is a big disparity in the amount of increases being sought from the larger can companies and the smaller guys," one tin products buyer said. "The smaller guys were paying more last year. The mills tried to get larger customers to pay more at mid-year (2008) when (steel) prices went up, but the big guys had contracts and balked at that."
Mills added a surcharge—described as a "competitive market price adjustment"—because they were getting higher prices from smaller-volume buyers, he said. That surcharge is now being rolled into 2009 contract prices for larger buyers.
"I think some of the larger can companies could be seeing increases even higher than 30 percent," one Midwest processor said. "The mills are trying to normalize pricing and get it into a more normal band. I think the range could be anywhere from 15 to 50 percent, but it's hard to really pinpoint a percentage increase."
In the summer, mills were getting higher prices for hot-rolled sheet and thought higher prices for tinplate would follow in 2009. Imported tinplate was coming to the United States from Asia in the summer at around $1,600 per ton ($80 per hundredweight). At that time, hot-rolled sheet was selling in the United States for about $1,100 per ton ($55 per cwt).
Producers generally must achieve a premium of at least $400 per ton on tinplate to make the product profitable, sources say. Given current hot-rolled prices hovering around $560 per ton, mills would need about $1,000 per ton for tinplate to make it profitable. But given the range of tin price increases being sought for 2009, prices likely will settle anywhere from $1,100 per ton to as much as $1,400 per ton, sources said.
"Hot rolled dropped like a stone later in the year, so the chance to get 75 to 80 cents (per pound) for tinplate (the equivalent of $1,500 to $1,600 per ton) is gone," the Midwest processor said.
Higher U.S. prices also have caught the eye of foreign tinplate suppliers who would like to ship more of the product to the United States, but concerns about the quality of imported product abound, another source said.
"There has been a lot of sniffing around the market from Asia—Taiwan, South Korea, China—because higher U.S. prices have caught their attention," he said. "But there are concerns over quality. There are 20-plus tinning lines in China that may be buying poor-quality black plate from the mills there and coating it with tin. That comes here at a good price, but it's a poor-quality product. It can be used for things like pails or candy tins, but it's no good for food cans."
The U.S. market for tin remains strong, bucking the trend in other steel products. The reason is fairly simple: In recessionary times, consumers tend to go out to dinner less often and eat in more; thus, demand for cans containing vegetables, soups or tomato sauce, among other foods, tends to increase.
"Canned food sales are performing very well," according to Rich Tavoletti, director of the container market program at the American Iron and Steel Institute, Washington. "A lot of it depends on how long and how severe the economic downturn is. Can shipments have been relatively stable over time."
U.S. tin mill product shipments this year have increased from 2007 levels, the AISI reported. Shipments through August, the last month for which data is available, were up about 13 percent from the same period last year, Tavoletti said.
"Next year should be a pretty good year for tinplate," Phil Withum, Ohio Coatings' vice president of sales, said. "The market generally does not suffer in a recession. It hasn't had to go through the pain that some of the other steel markets have faced this year."
Analyst Alton Stump of Longbow Research, Independence, Ohio, wrote in a recent research note that companies like Campbell Soup Co. are facing significant cost pressures based on rising prices for cans. He noted that the domestic food can supply market is dominated by three players—Silgan Holdings Inc. (which supplies all of Campbell's North American food cans), Ball Corp. and Crown Holdings Inc.—and that Campbell is one of the largest U.S. buyers, with a 10-percent share of the North American market.
"Given the consolidated landscape at the tinplate and food can supply chains, (Campbell's) will likely have no choice but to continue to accept annual and quarterly contract price adjustments into the foreseeable future," he wrote. "Domestic steel producers plan to implement a hefty 35-percent-plus price hike on tinplate (to more than $1,100 per ton from $800) in January. Since tinplate steel represents 50 percent of total food can production costs, the upcoming price increase would equate to a high-teen price increase on food cans from sheet metal pass-through alone, or what could easily top 20 percent plus, assuming even moderate upward adjustments for conversion costs."
Meanwhile, mills have reduced tinplate capacity around the world, including in North America, where ArcelorMittal has cut back tin product output at ArcelorMittal Dofasco in Hamilton, Ontario. That has tightened supply, but in something of a reversal from other markets in a financial downturn, tinplate demand has increased slightly.
"Supplies are still tight," another market source said. "A 3- to 5-percent increase in can demand is counter-recessive, but puts mills in a great position to increase prices for '09. Mills are in a position to get price increases for '09 because they have reduced capacity at a time when tinplate demand is a little stronger. But they (the mills) can't ignore that the hot-rolled price has dropped."
With that in mind, some customers reportedly are asking mills to peg tinplate to some sort of index. Several have been suggested, to no avail. One source said that U.S. Steel suggested an index tied to a basket of goods. "No dice on that to this point," he said. "I think you may see buyers try to go to more six-month or quarterly pricing deals instead of this being done on a yearly basis."
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