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US stainless market to see little change in 2013

Keywords: Tags  stainless steel, 2013 outlook, Ed Blot, Ed Blot & Associates Inc., Stainless and Its Alloys Conference, Thorsten Schier

The domestic stainless steel market might not see much growth in 2013, and market conditions could bear more than a passing resemblance to last year.

“My forecast for the total market (in 2012) is that it’ll be down slightly and we’ll be flat (in 2013),” Ed Blot, owner of Ed Blot & Associates Inc., told participants at AMM’s 26th annual Stainless and Its Alloys Conference in Chicago.

Markus Moll, managing director and senior analyst at Austrian firm Steel & Metals Market Research GmbH, agreed that a flat year is the best the domestic market can hope for, but he also left open the possibility of a decline if economic issues, such as the debt ceiling, are not dealt with.

The main end markets for stainless are tied strongly to gross domestic product growth, which has been hampered due to fiscal and political issues.

“We’re not looking for a lot of growth. Automotive is likely (reaching a plateau) at the 15-million-unit level. The consumer is still strained financially, and general industrial demand at this point looks pretty tepid,” one industry analyst said.

Not all sources shared the tepid forecast, however.

“Distributors liquidated a lot of inventory (in 2012) as nickel prices fell. Even if we assumed no restocking (in 2013), there would be the absence of inventory liquidation. I would be very disappointed if the U.S. market didn’t strengthen by at least 5 percent,” said John Tumazos of Holmdel, N.J.-based Very Independent Research LLC.

Much like in 2012, demand is expected to start the year strong, buoyed by price increases on commodity flat-rolled stainless and restocking at the distributor and consumer levels, then taper off toward the end of the year, most sources agreed.

“The first quarter will start off with a bang, kind of like (2012), and after that it’s going to be pretty mediocre,” said one nickel supplier to the stainless industry.

While there was some disagreement on demand levels, all sources agreed that base prices are likely to remain under pressure due to overcapacity, both domestically and abroad.

“Pricing will be poor and import competition will continue,” Tumazos said, adding that 2013 likely will bring a “good volume, poor price” scenario.

“You’re probably looking at another year of pretty weak base pricing unless you see a nickel catalyst, which we don’t see right now,” the industry analyst said, adding that the United States likely will remain a “highly competitive marketplace.”

Domestically, the start-up of the melt shop at ThyssenKrupp Stainless USA LLC’s facility in Calvert, Ala., likely will have an effect on base prices as the mill looks to establish itself in the marketplace.

“You can point to a couple of issues on the supply side. The obvious one is Thyssen,” the analyst said.

However, the merger between parent Inoxum Group, a division of Germany’s ThyssenKrupp AG, and Finland’s Outokumpu Oyj puts the plant under new ownership, and some analysts have suggested that the Finnish stainless producer might consider a different ramp-up schedule.

“(Outokumpu) may say, ‘Wait a minute, maybe that’s not the right thing to do, growing all this market share.’ At the same time, they’re going to have to do something with the melt shop,” Blot said.

Internationally, growing overcapacity, especially in Asia, and subsequently high levels of imports also will continue to affect the domestic market.

Import penetration by all stainless products rose nearly 16 percent in the first nine months of 2012, according to the latest figures from the Specialty Steel Industry of North America, and the industry body has expressed concern specifically about the sharp rise in imports of stainless plate, which jumped more than 34 percent in the nine-month period.

“Imports are at pretty high levels, while the demand environment at this point is sort of stable,” the industry analyst said.

No outlook on stainless would be complete without a look at nickel prices, the main determinant of stainless surcharges that now make up more than half the sales prices for stainless.

If prices increase for the metal and, subsequently, surcharges, distributors and consumers are less likely to run down their inventories or delay projects in anticipation of lower prices.

However, nickel tags are not expected to rise substantially as tepid global demand and growing supplyÑfrom the Ambatovy nickel mine in Madagascar, for exampleÑlikely will keep the market in a surplus, most analysts agree (see nickel outlook, page 38). Also, nickel pig iron will again be a significant supply factor in China, with its low-cost production keeping nickel prices range-bound.

“The outlook for nickel rising is poor,” said Tumazos, who also cited high stocks in London Metal Exchange warehouses.

While the growth outlook for the domestic market is less than bullish, global demand growth for stainless is assured as China especially continues to urbanize and per-capita stainless consumption keeps growing in developing economies.

Research house Macquarie Capital Ltd. expects global stainless production to total 38.1 million tonnes in 2013, up 7.6 percent from 35.4 million tonnes in 2012, according to a recent research note.

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