Despite this years worrisome volatility in nickel
pricesincluding precipitous drops during the
summermany in the market remain confident that a return
to higher levels could provide a renewed glimmer of hope that
the U.S. stainless steel market will regain at least some of
the momentum it has lost.
But this isnt guaranteed, given concerns about the
impact of continued economic weakness in Europe and Asia,
still-high U.S. unemployment rates, the hotly contested
presidential election, rising imports and increasing domestic
Overall, the domestic market has fared better than stainless
markets in most other regions of the world. In fact, business
had been holding steady at a good demand level until late April
or early May, according to Carl Moulton, senior vice president,
international, at Pittsburgh-based Allegheny Technologies Inc.
(ATI) and chairman of the Stainless Steel Industry of North
The market has since softened. Currently, there is a
gloomier economic outlook worldwide, Moulton said, adding
that the effect of the nickel price decline cant be
After peaking at $21,880 per tonne on Feb. 8, the London
Metal Exchange three-month nickel price fell to $16,090 per
tonne at the start of June, then inched slightly higher
throughout the month before retreating to a year-to-date low of
$15,530 per tonne in early August.
While nickel prices had been expected to bottom out and
rebound, industry observers said this is unlikely to affect
stainless buying patterns until higher prices are
Stainless transaction prices followed nickel and other
alloys lower, even with mills hiking base prices a few months
ago. The bulk of the stainless transaction price is comprised
of raw material surcharges, which reached their lowest level of
the year in August.
Given what has been happening over the last several
months, service centers and their OEM (original equipment
manufacturing) customers have been working down their
inventories and just purchasing the items that they know they
need, Bill Sales, senior vice president of nonferrous
operations at Los Angeles-based Reliance Steel & Aluminum
By the end of May, U.S. service centers had whittled down
their stainless steel inventories to 2.5 months supply,
according to the Metals Service Center Institute, and although
it inched up to 2.7 months in July, several distributors said
they would like to see their inventories move even lower
No one wants to get caught with high-priced
inventories, said a product manager at ONeal Steel
Inc., Birmingham, Ala.
But the question remains how much leaner distributors can be
even with mill lead times as short as six weeks. Other issues
will be whether master distributors will have adequate stocks
and if they will start hedge buying if nickel prices continue
At the beginning of the year, flat-rolled mills narrowed the
window of visibility on their alloy surcharges to one month vs.
two months previously to minimize pre-buying in anticipation of
price increases. This new mechanism has served us
well, Moulton said.
However, Dennis Oates, chairman, president and chief
executive officer of Universal Stainless & Alloy Products
Inc., Bridgeville, Pa., who is vice chairman of the SSINA, said
that while he sees how this lessens the exposure to the
vagaries of speculation, his company and several other
long product producers didnt follow suit. I
dont see it as being that critical as long as there is a
vibrant supply chain, Oates said.
I dont think we are seeing the impact that we
thought we would with the new mechanism, Bob Mraz, vice
president of sales and marketing at TW Metals Inc., Exton, Pa.,
said. I dont see it influencing how service centers
and our customers are buying.
Sales agreed. I think at some point the mills might
throw the whole thing out and either rework it to give
greater weight to base prices or just use one flat price, he
said. That could change the buying pattern.
The new surcharge mechanism could help keep U.S. imports
lower, according to Markus A. Moll, managing director and
senior market analyst at Steel & Metals Market Research
GmbH, Reutte, Austria, as could the ramping up of ThyssenKrupp
Stainless USA LLCs mill in Calvert, Ala. (part of
ThyssenKrupps Inoxum group, which is expected to be sold
to Outokumpu Oyj), as its capacity will displace imports from
its parent and sister companies.
No one wants to take a chance on the long lead times
of imports with the relatively low U.S. price, whichfor
304 cold-rolled coilsis only around $400 below the
Chinese price, Moll said.
Nevertheless, Christopher Plummer, managing director of
Steel Strategies Inc., West Chester, Pa., noted that
preliminary import license data shows that stainless imports
According to the Commerce Departments Import
Administration, stainless import license applications totaled
115,472 tonnes in July, up 15.7 percent from 99,840 tonnes in
the same month last year and 10.1 percent ahead of preliminary
June imports of 104,875 tonnes.
Moll attributed the increase to orders being placed when the
market was stronger, which bodes well for a tapering off in
stainless imports over the next few months.
Underlying stainless demand is actually fairly steady,
especially for contract business, according to Brad Hite,
president of Stainless Sales Corp., Chicago, who is
particularly bullish about the automotive market. He pointed to
the push for more-fuel-efficient lightweight vehicles and a
shortening or cancellation of some of the usual summer auto
Oates also noted that many end markets, like energy and
power generation, aerospace and transportation, are still
U.S. manufacturing is generally said to be holding up better
than elsewhere in the world. The Federal Reserve Board reported
that U.S. industrial production was up 4.7 percent year on year
However, the Institute for Supply Managements
manufacturing purchasing managers index fell to 49.7
percent in June and 49.8 percent in Julythe first
readings below the break-even 50-percent mark since July 2009.
The orders component of the index in June saw its steepest fall
since October 2001, according to Nigel Gault, chief U.S.
economist at IHS Global Insight, although he said that such a
steep reversal without an obvious trigger suggests that some of
the deterioration in orders might reflect volatility rather
than a sudden collapse.
There also is some concern about new production capacity
with the Inoxum mill in Calvert continuing to ramp up, and ATI
bringing on new capacity next year, Hite said.
The additional capacity isnt needed, Moll said, noting
that the U.S. market is already in overcapacity. U.S. stainless
capacity utilization is only 61 percent, he said. While that is
up slightly from 59 percent in 2011, it is based on nameplate
equipment capacity, which often doesnt equal the real
capacity of a plant, few of which are operating on a 24/7
schedule at the moment.
Nevertheless, the ATI capacity wont be coming online
until next year and will be focused on premium products rather
than commodity grades, and even the effect of the ThyssenKrupp
ramp-up will be limited, according to Moll.
Moulton maintains that U.S. supply and demand is in better
balance than it was 10 years ago, and while there could be a
short-term negative effect, the investments in new capacity
were made for the long term.