There is growing optimism in the domestic stainless steel market, perhaps for the first time since the economic downturn, due in part to an across-the-board improvement in end-use demand, higher raw material prices and lengthening lead times.
Both stainless flat-roll and long product mills are feeling much better about the market, Bill Sales, senior vice president of nonferrous operations at Los Angeles-based Reliance Steel & Aluminum Co., said, with lead times moving out due to improving demand for nearly every stainless steel consuming end-use market.
Lead times at stainless flat-roll mills are out as far as six months compared with their typical three and a half to four months, according to Jason Kaplan, senior manager for pricing and purchasing services at Englewood, Colo.-based IHS Inc.
But that varies greatly by mill, Metal Bulletin Research senior steel analyst Robert Cartman said, noting that lead times at Outokumpu Stainless USA LLCs Calvert, Ala., mill--which is ramping up--is out into October, while those at most other stainless flat-roll mills are out into late November or early December. Lead times at long product mills are at the shorter end of the range, but also are longer than earlier in the year.
The U.S. gross domestic product fell 2.9 percent in the first quarter--its largest decline since 2009--according to the Bureau of Economic Analysis, but stainless steel demand continued to show strong growth. Much of that improvement was driven by real demand rather than inventory restocking, although that also was a factor, according to Markus A. Moll, managing director and senior market research analyst at Austrias Steel & Metals Market Research GmbH.
With mill lead times extending, some service centers are becoming more willing to increase inventories to ensure service to their customers, Kaplan said. But Cartman believes that is the exception, not the rule. Most are happy to hold lean inventories, he said.
Service centers generally are playing it close to the vest, Sales said, adding that many have seen increased business due to rising stainless prices as well as improving nickel prices, which is due mostly to the Indonesian ore export ban that went into effect in January. There is concern that if the ban is reversed, stainless steel prices could fall as fast as they increased, he said.
A Chicago-based service center executive acknowledged that his company had lost some orders because it did not have enough stock on hand. But that is better than staring at coils that arent moving, he said.
Stainless steel is a high-cost material, and if you make a couple of mistakes it could hurt a company, Mark Weberding, director of bar sales at Wyomissing, Pa.-based Carpenter Technology Corp., said. No one wants to make long-term decisions based on what Indonesia or any other government may or may not do.
Improved demand for commodity rod and coil stainless steel products has been driven by a strong aerospace market, more stainless steel being used for the completion of wells and for downhole applications in the energy sector, and solid consumption in power generation, according to Steve Letnich, chief commercial officer of Oak Brook, Ill.-based A.M. Castle & Co.
Much of the demand for gas turbines from utility companies has been for maintenance or upgrades, said Dennis Oates, chairman, president and chief executive officer of Bridgeville, Pa.-based Universal Stainless & Alloy Products Inc., although he expects demand for new turbine business to pick up later this year or next due to favorable natural gas prices.
Stainless flat products also are seeing strong fundamental improvement in demand with the recovery in the housing market and nonresidential construction, bolstering stainless steel use in such products as appliances, window channels and flexible gas lines, said Dan Greenfield, vice president of investor relations and corporate communications at Pittsburgh-based Allegheny Technologies Inc. (ATI).
New restaurant construction also has meant strong demand for commercial cooking equipment, according to Christopher Plummer, managing director of West Chester, Pa.-based Metal Strategies Inc.
The strength of the automotive market also has driven demand, although Moll noted that while overall domestic auto output is expected to rise about 4 percent this year, the impact on stainless demand will be less than that due to an overstocking of automotive exhaust systems at the beginning of the year.
Domestic mills have been raising base prices due to strengthening demand and extended lead times. Mill price increases in April and June have been nearly universally accepted, but the success of a possible third base price increase led by ATI--initially slated for July but then pushed back to August--is less certain, Cartman said. The move was followed by Outokumpu and Middletown, Ohio-based AK Steel Corp., but has yet to be supported by Ghent, Ky.-based North American Stainless Inc. (NAS), which is seen as the industry leader.
Price increases historically have crumbled if NAS does not follow them, according to a service center executive in the South. But it could be different this time, he said, citing extended lead times, stronger and continually strengthening end-use demand and generally firming raw material surcharges, with nickel and molybdenum prices strengthening.
But even if the August price increase fails, it could set the market up for another price rise after the summer slowdown is over, Cartman said.
Service centers said that imports--except perhaps for light-gauge products--have not been worth the risk even with, for example, domestic stainless steel transaction prices for Type 304 stainless cold-roll increasing about 23 percent from January to June. The import share--excluding semifinished--fell to 33 percent in the first quarter from 41.3 percent last year, with the ramp up of Outokumpus Calvert mill changing the structure of the market and displacing some imports due to its location, Plummer said.
Stainless steel prices in Europe and Asia also are under upward pressure from rising nickel and molybdenum costs, so many distributors and consumers believe the price differential is not wide enough to be worth the risk.
London Metal Exchange nickel prices, which jumped 31.8 percent from January to June, went up in anticipation of a potential nickel shortage in 2015, Moll said. Whether that happens depends on how China reorganizes its nickel supply, including whether it returns to buying nickel metal or if it is building up its nickel pig iron supply, or perhaps buying ferronickel or nickel ore from the Philippines as its nickel pig iron producers start to run out of stocks of Indonesian ore. This will be a stress test for the nickel industry, he said.
The U.S. stainless steel market this year should be up 3 to 5 percent compared with 2013, with the potential for even greater growth in 2015, Oates said.