The health of the domestic and global economies in the fourth quarter could make or break the near- and medium-term profitability of the U.S. stainless steel industry, according to analysts.
North America remains one of the strongest regions globally, with many stainless-consuming industries in the region recovering sooner than expected, said Amy Bennett, principal steel consultant at Metal Bulletin Research. However, she acknowledges that there has been some slowing due to a combination of economic uncertainty and falling raw materials pricing.
The momentum that the U.S. stainless market had been experiencing in the first quarter is currently fading a little, and in recent months it has even begun to go slightly backwards compared with the very strong market a year ago, said Markus A. Moll, managing director and senior market analyst at Steel & Metals Market Research GmbH, Ruette, Austria.
Even during the first quarter, U.S. stainless steel consumption had been trailing year-earlier levels by 2.6 percent, according to the Specialty Steel Industry of North America. But that compares with very strong consumption during the first three months of 2011, much of which was due to service center restocking, Moll said, noting that stainless inventories at U.S. distributors were down about 10 percent at the end of May compared with a year earlier.
Moll said that actual stainless steel demand is comparable to levels seen a year ago, with even the lagging building and construction market starting to improve slightly. He said the real driver has been the chemical and petrochemical process industries and its pull on pipe and tubing, which has increased about 40 percent year on year.
Automotive market demand, especially for exhaust systems, also has been strong, Bennett said, while certain construction-related markets, as well as appliances, continue to be somewhat weak.
Nevertheless, lead times for domestic stainless mills have been eroding amid declining orders, which are partly the result of falling surcharges for such raw materials as scrap, nickel, ferrochrome, molybdenum and manganese, said Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa.
Raw material surcharges, which are the largest component of stainless transaction prices, continue to fall, reaching their lowest level of the year in July, led by lower nickel prices as well as weaker molybdenum and ferrochrome tags, Bennett said.
This, combined with uncertainty about the economies in Europe, China and the United States, have resulted in service centers trying to keep their inventories at rock-bottom levels, she added.
Moll agreed, noting that the drop in nickel prices, and thus stainless, has led service centers to buy mostly among themselvesfrom master distributors or competitorsrather than buying forward from the mills.