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2014 Outlook: Stainless Steel

Dec 31, 2013 | 08:00 PM | Rey Mashayekhi

Tags  Stainless steel, Global, China, North America, nickel pig iron, North American Stainless Inc., SMR, Outokumpu Stainless USA Allegheny Technologies Inc.

While 2013 saw the North American stainless steel industry gradually rebound from a slow start, the question now is whether that momentum can continue and translate into a strong 2014.

Global stainless steel consumption grew 15 percent from the previous year, according to Metal Bulletin Research (MBR). Such an increase would suggest that China’s thriving stainless industry, rather than North America’s, reaped most of the benefits. While that was true to a great extent, the reality was more complex. 

A Chinese stainless steel market boosted by a seemingly endless supply of cheap nickel pig iron (NPI) has driven itself into overproduction, according to MBR. A 20-percent year-on-year increase in stainless output in the first nine months of 2013 resulted in Chinese domestic oversupply, which combined with falling nickel prices left producers with no option but to slash prices.

By comparison, market fundamentals in North America appear to be strong. Production discipline resulted in tightening supply, and demand indicators from major end markets strengthened. After announcing base price increases in August and October, the major North American mills reportedly are now considering a third price increase in January, according to MBR, although Ghent, Ky.-based North American Stainless Inc. (NAS) is said to be concerned that another price increase could encourage further competition from stainless imports.

Regardless, the U.S., Canadian and Mexican stainless markets are expected to experience combined growth of 4 to 5 percent in 2014, according to estimates by Reutte, Austria-based analyst Steel & Metals Market Research GmbH (SMR), up from growth of nearly 3 percent last year, fueled by a “substantial improvement” in the long product market—which experienced a stagnant and overstocked 2013—and continued growth in the flat product market.

Meanwhile, demand continues to improve, particularly across the automotive and transportation end markets. Better economic conditions, including low interest rates, resulted in an 8-percent year-on-year growth in light vehicle sales in the first three quarters of 2013, according to SMR—growth that is likely to continue. Consumer goods and construction applications also saw growth in 2013, with an 8-percent increase in appliance orders in the first nine months of the year and a strengthening residential housing sector. 

In total, stainless steel shipments increased 16 percent in the first three quarters of 2013 to 1.85 million net tons, according to SMR, driven mainly by substantial cold-rolled shipment increases, attributed almost entirely to the production ramp-up at Outokumpu Stainless USA LLC’s Calvert, Ala., facility.

Indeed, going into 2014 the ongoing ramp-up of operations at Calvert appears to have shaken up the North American industry more than any other development. Perhaps the biggest impact has been on U.S. imports and exports of stainless steel; SMR cited a 17-percent decline in imports of stainless flat-rolled products through the third quarter of 2013 “due to substantially falling coil for rerolling imports for Outokumpu’s production,” and a 19-percent increase in flat-rolled exports. 

U.S. Census Bureau data, meanwhile, indicated that U.S. stainless steel imports in November were down by more than 29 percent from the same month a year earlier. “There have been some competitive offers recently (from importers), especially for a lighter-gauge product,” MBR said in November. “In general, however, service centers have not been willing to risk the longer lead times, particularly when there’s such a limited pricing incentive on commodity products.”

While 2013 showed cause for optimism for Outokumpu and NAS—with the latter reporting a 4-percent increase in its market through the third quarter—the likes of West Chester, Ohio-based AK Steel Corp. and Pittsburgh-based Allegheny Technologies Inc. (ATI) look to have it worse heading into 2014. AK Steel reported lower stainless shipments in the third quarter of 2013, while ATI cited lower sales that have led to a policy of cost reductions and plant closures.

Still, a range of factors seem to indicate that 2014 will hold better things for the North American stainless steel industry. Indonesia’s nickel ore export ban, which went into effect Jan. 12, will restrict the supply of raw material into China for NPI production and perhaps require that nation’s stainless steel industry to use a more-expensive input. Nickel appears set to bounce back from a terrible 2013, which can only be good for stainless producers and distributors that have been operating on tightening margins. And Outokumpu’s ramp-up has re-energized domestic production and warded off imports, ready to serve end markets that are expected to grow over the next year.

Even MBR has noted “a more positive tone in the marketplace,” despite companies remaining cautious about taking any big positions. “In the case of the stainless market, positive, albeit slow, growth in many end markets ... (is) feeding through into a increasingly positive outlook for the U.S.” 

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