Steel Buyers Basics: Sheet Steel Weight vs. Area

There are two types of risk associated with thickness that buyers should understand and resolve.  The first is the wide range of possible thicknesses in a particular gauge of steel.  For instance 24 gauge Galvanized steel can range from a thickness of 0.0236” to 0.0316” with a mid-point dimension of 0.0276”.  If a buyer orders 24 gauge steel from a Service Center they could conceivably receive 0.0276” thick material which is technically within the 24 gauge thickness standards (and it could be thicker).  A competitor who orders at the minimum thickness dimension allowed will have a huge cost advantage because they could receive as much as 14.5% more square feet of steel per pound.

Suppliers have a great temptation to ship steel on the heavy side of the gauge.  Sales increase (because the user needs square feet and therefore is buying more pounds) and the steel is less expensive to process (the supplier’s facility produces more tons/hour).  There are also price differentials within the gauge & width and coating extras which can make it cheaper for a supplier to buy heavy to gauge steel from a steel mill.

For buyers there is a simple fix, just make sure you specify and order steel by its decimal thickness dimension and not by its gauge.  Further, always try to order the minimum possible thickness dimension.  Note that finding this decimal specification may require some research within your company but the savings are well worth the effort.

Typically large buyers of steel know about this thickness range for each gauge and always order to a decimal thickness.  Steel Mills will also require a decimal thickness on any order.  However, even large buyers of steel often ignore the second area of risk.  Steel sheet is never exactly the thickness that it is ordered, since it is impossible to control the rolling process perfectly, and can be up to 5% heavier than expected and the buyer receives 5% less square feet of steel.

For instance, a buyer’s customer requires 0.0466” minimum thickness galvanized steel so the buyer orders at this dimension.  Various mills have greater or lesser ability to hold the specified thickness dimension throughout the coil.  One steel mill will target the thickness of the coil at 0.048” to ensure that the coil thickness is greater than the minimum required.  Another might have a target (called the nominal thickness) at 0.050”.  In my experience a coil of steel, from a good mill, is typically 3.5% heavier than a minimum specified thickness, another mill might be 5% heavy.  Remember, that percentage is right off the top; if your company makes 5% on its steel sales then this one issue could represent 100% of your profitability!

So one recommendation I have is to keep track of the steel you are receiving from your suppliers and evaluate the rolling practices of the mills with which you do business to determine who can hold the tightest thickness tolerances to the minimum thickness specified.

Some mills and service centers (for a fee) will allow a buyer to order steel based on a Theoretical Minimum Weight (TMW).  TMW allows the buyer to purchase the actual square feet of steel they need at the exact specified dimension without worrying about the actual thickness of the steel.  If the steel is thicker than the decimal specified the supplier and not the buyer absorbs the extra cost.  TMW works by calculating what a coil (or sheet) of steel should weigh based on its total dimension.  Here are a couple of examples.

                                          0.0466 x 48” Galvanized Sheet    0.0145 X 40.875” Galvalume Sheet
                
Density                                                    0.2833 lbs/in3      0.2670 lbs/in3
TMW Weight/square foot                          1.8768 lbs/ft2        0.5574 lbs/ft2
TMW Weight/linear foot                             7.5072 lbs/lf         1.8986 lbs/lf
TMW Weight of a 10’ sheet                        75.072 lbs           18.986 lbs
TMW Weight of a 4000’ coil                        30,029 lbs           7,594 lbs
Actual Weight of a 4000’ coil                       31,080 lbs          7,860 lbs  (coil is 3.5% heavy)
Actual Weight of a 4000’ coil                       31,530 lbs          7,974 lbs  (coil is 5% heavy)

Let’s assume the price adder for TMW is $1.50/cwt, further the base price for the 0.0466 coil is $40/cwt and the base price for the 0.0145 coil is $50.00/cwt.  Does it make sense to use TMW?  Let’s run the calculation.

0.0466 x 48” galvanized coil
        
TMW cost                  30,029 lbs * (40 + 1.50)/100 $/lb = $12,462
Actual Weight Cost    31,080 lbs * (40 + 0.00)/100 $/lb = $12,432 (3.5% heavy)
Actual Weight Cost    31,530 lbs * (40 + 0.00)/100 $/lb = $12,612 (5% heavy)

0.0145 x 40.875” Galvalume coil

TMW cost                  7,594 lbs * (50 + 1.50)/100 $/lb = $3,911
Actual Weight Cost    7,860 lbs * (50 + 0.00)/100 $/lb = $3,930 (3.5% heavy)
Actual Weight Cost    7,974 lbs * (50 + 0.00)/100 $/lb = $3,987 (5% heavy)

As you can see, ordering TMW can make sense based on how heavy to TMW the coil is.  The $1.50 adder is about  breakeven at 3.5% and becomes favorable to the buyer at 5%.  The take-away here is that this calculation should be checked and even if you do not (or cannot) buy at TMW — your supplier should still be held accountable to the actual square feet of steel delivered vs. what is being ordered.

One interesting point is that Galvalume coated steel is less dense than Galvanized coated steel — particularly at the thinner gauges.  If the price per pound of Galvalume is the same as the price of Galvanized then installed cost of the Galvalume coil is favorable to Galvanized because it will cover a larger area.

While these savings are small, remember they go directly to the bottom line.  If your company tracks the square feet of steel received vs. its weight and holds your supplier accountable to a range then you do not need to purchase TMW.  However if you do not track this weight to square feet then I suggest you pay the TMW adder and avoid the risk of heavy to gauge steel.

SMU Note: Mario Briccetti is the Principal of Briccetti & Associates a consulting firm dealing with supply chain. Previously he held vice president level or lead steel purchasing positions at Nordyne, Gibraltar Strip Steel and Metal Sales Manufacturing Corp. Mario can be reached at: Mario@MBriccetti.com

If you are interested in learning more about the flat rolled steel industry in North America, Steel Market Update has the following recommendation:

We host a two-day steel training workshop called Steel 101: Introduction to Steelmaking & Market Fundamentals. Our next workshop will be held in Mobile, Alabama on February 4 & 5, 2014 and will include a tour of the SSAB mini-mill located just outside of Mobile. You can find more information about the workshop on our website or you may contact us at: info@SteelMarketUpdate.com.