The domestic stainless steel
industry saw a strong pickup in the first quarter of this year,
but volatility in the nickel market and some concerns about the
softening of overall demand have created a gulf between the
optimists and those who worry that the rest of the year might
be a struggle.
Well-stocked stainless scrap
consumers reportedly bought less in March as they waited to see
where the nickel market would land. Earlier in the year,
stainless mills were said to be taking a lot of scrap on the
back of solid order books, with one foreign-owned mill
reportedly unable to secure enough material (AMM, Feb.
The slowdown in buying came as
stainless scrap prices fell due to a decline in the London
Metal Exchange cash nickel price that began in early
"Weve seen a little bit of
a breather because of the drop in nickel prices," one supplier
source said. A source at another suppler said, "Demand is a
little bit down. Buyers are satiated with supply at the
Some scrapyards are said to be
sitting on material because of the lower broker buying prices.
"The flow of material is not that good right now; people are
sitting on it a little longer," one broker said.
The fall in nickel has led some
distributor customers to revert to a more normal ordering
pattern. "The recent rush to buy has come off a little bit, but
nothing dramatic. If youre a buyer, theres no
advantage to waiting with your purchases. You might save a few
pennies on the surcharge, but nobody is delaying their
purchases (because of that)," a Midwest service center
Imports also remain a concern
for domestic stainless steel producers. While U.S. stainless
consumption rose 26.3 percent in 2011 compared with the
previous year, according to figures from the Specialty Steel
Industry of North America, imports also shot upgaining
Imports could decrease somewhat
with the ramp-up of ThyssenKrupp AGs stainless facility
in Calvert, Ala., as product from the mill will replace imports
from the companys operations in Germany and Italy. The
Calvert ramp-up seems to have caused little concern about
overcapacity for domestic producers, and business so far this
year was generally said to be better than a year earlier.
"Weve been ahead of last
year, much to our surprise," said a buyer at one original
equipment manufacturer. "Our consumption of stainless has been
up more than 5 percent."
But not all observers believe
those increases are indicative of where 2012 might move. The
North American stainless steel market will struggle this year
to repeat the explosive growth in consumption seen last year,
according to an industry analyst.
"For some reason, the United
States was the worlds China last year," Markus Moll,
managing director and senior market analyst at Austrias
Steel & Metals Market Research GmbH (SMR), said in late
March at the Metals Service Center Institutes specialty
metals conference in Bonita Springs, Fla. As a result of strong
U.S. demand growth, stainless consumption in all of the
Americas rose by about 19 percent last year, far higher than
SMRs projected 6 percent, he said. Such a growth rate is
unlikely to be sustained this year, however, as the market
returns to levels seen before the economic crisis hit in
"The U.S. stainless market is
seeing a V-shaped recovery," Moll said, adding that higher
stainless consumption in the fabrication market and the use of
stainless in new applications led to the growth spurt. All
regions will slow in 2012, he said, with consumption in the
Americas now projected to grow 4 percentabout 140,000
additional tonnes of stainlessthis year, while Chinese
growth will be around 5 percent vs. 8 percent last year.
But Brazils Vale SA sees
demand for nickel improving in 2012 on the back of better
sentiment in the stainless steel market. "After some slowing in
the fourth quarter of 2011, the demand for stainless steel is
improving again as we enter 2012, with orders increasing in the
Americas and Europe," the Rio de Janeiro-based company said in
an earnings report.
Nickel prices this year will
depend on the pace of global project ramp-ups and the level of
Chinese nickel pig iron production, Vale said, although the
company sees the downside supported at $17,000 per tonne ($7.71
per pound) due to production costs for nickel pig iron in
Vale shipped 252,000 tonnes of
nickel last yearits highest level since 2008at an
average price of $22,680 per tonne ($10.29 per pound),
generating revenue of $5.72 billion. Production totaled 242,000
tonnes in 2011, a 35.1-percent increase from the previous year,
with the companys Canadian operations showing strong
growtha 64-percent jump to 154,000 tonnesafter
being hampered by strikes in 2010.
Prices for bellwether 304-grade
cold-rolled stainless were roughly on par in Europe and the
Americas last year, with Chinese producers about 25 cents per
pound lower, a smaller margin than seen previously. "This is a
level where it is still attractive for the Chinese mills to
deliver to the U.S. market, but just about," Moll said.
Chinas share of
flat-rolled shipments to the North American market decreased to
17 percent last year from 20 percent in 2010, even as producers
there continue to dominate global output, with seven of the 20
largest producers of flat-rolled stainless based in China,
according to Moll. Only two American producers were in the top
20, and none was in the top 10. Stainless consumption in
Brazil, Russia, India and China exceeded that of the rest of
the world for the first time last year, he added.
The catering and appliance
segment was the biggest global consumer of stainless in 2011,
accounting for about 38 percent of the world market, while in
the United States the transportation sector made up the biggest
share at 26 percent, Moll said.
Digging deeper into the numbers
does reveal a longer trend upward. World stainless steel output
rose by 3.3 percent in 2011 as a strong fourth quarter
compensated for some destocking in the third quarter, the
International Stainless Steel Forum (ISSF) said in late
World production reached a
record 32.1 million tonnes last year, the ISSF said. "China has
remained the driving force in stainless steel production, with
growth of 11.9 percent in 2011. The country produced 12.6
million tonnes of stainless during the year" compared with 11.3
million tonnes in 2010. Excluding China, however, production in
Asia fell by 2.7 percent to 8.8 million tonnes last year from 9
million tonnes in 2010. Stainless production in Western Europe
and Africa totaled 7.9 million tonnes in 2011, unchanged from
the previous year, while the Americas produced 2.5 million
tonnes, down from 2.6 million tonnes in the same
Most production in 2011 was
300-series stainless steel (with chromium and nickel), which
accounted for 58.2 percent of world production, according to
ISSF figures. Chromium steel (400 series) represented 28
percent of the total, while 200-series (chromium and manganese)
stainless output accounted for 13.8 percent.
"Over the past few years, the
stainless steel market has seen major changes in the grades of
stainless produced. Chromium-manganese grades have become
increasingly important in this time," the ISSF said.
In the United States, executives
have displayed differing views on the stainless market.
"Service center buyers remain
very cautious in their buying approach and are reluctant to
place large orders at this time. Theyre purchasing only
to meet their immediate needs," James Wainscott, chairman,
president and chief executive officer of West Chester,
Ohio-based AK Steel Corp., said in late 2011.
Allegheny Technologies Inc.
(ATI), Pittsburgh, reported 2011 revenue of $5.18 billion.
While that was up 22.8 percent from $4.05 billion in 2010, it
fell below the $5.4-billion to $5.5-billion range the company
had projected after the release of its third-quarter results
due mainly to weaker sales to the commodity stainless sector
amid buyer uncertainty caused by the European sovereign debt
"The end-market demand is really
very weak. Base prices for standard-grade sheet today are at
levels that I really dont believe are sustainable for
anybody. Theyre lower than during the trough of 2003,
which was a really bad market," Richard J. Harshman, chairman,
president and chief executive officer of ATI, said during his
companys third-quarter earnings conference call.
The key sources of anxiety for
many distributors and consumers alike are the uncertainties
surrounding demand due to the European debt crisis. "If some of
that uncertainty clears up in 2012, then well see some
improvements on base prices," Harshman said.
The performances of the key end
markets for stainless products have been mixed and are likely
to remain so.
There has been some improvement
in automotive, where stainless is used mainly in exhaust
systems. Production numbers are improving, with Wainscott
pegging 2011 auto output at 12.9 million vehicles, up from 11.9
million in 2010 but still only at about 70 percent of
Other bright spots have been the
commercial aerospace, oil and gas, process equipment and food
processing markets, Moll told AMM, predicting strong
growth in those sectors going into 2012.
The appliance market, on the
other hand, has been weak, with appliance maker Whirlpool Corp.
announcing in late October that it was laying off 5,000 workers
due to continued market weakness. Part of the malaise has to do
with the continuing slump in the construction market, with new
housing starts pegged at just 590,000 units last year, only
marginally higher than 587,000 in 2010, according to Wainscott.
In comparison, new housing starts never fell below 1 million
prior to 2007, he said.
Moll said demand from the
defense sector likely will take a hit in 2012 due to reduced