NEW YORK Stainless steel prices are currently at "unsustainable levels," Allegheny Technologies Inc. (ATI) chairman, president and chief executive officer Richard Harshman told AMM.
Harshman said that the Pittsburgh-based companys recent attempt to implement a base price increase (amm.com, April 9) was aimed at bolstering margins after a 12-percent base price increase effective Jan. 1 failed to last.
"That price held for less than two months and began to erode, and today the price is back where it was at the end of 2012," he said. "Base prices, in my view, continue to be at unsustainable levels long-term, because no producer can make an acceptable return on capital employed."
Harshman acknowledged that the announced base price increase effective May 6 didnt take hold in the market (amm.com, April 24), which he said indicates ongoing weakness in stainless market fundamentals. He recently described demand as "sluggish" (amm.com, April 24).
"When you see a base price increase that is meaningful and holds for a sustained period of time, that is indicative of improving fundamentals," he said. "Until you see that change, which has to be a fundamental drive, the stainless market is going to be a challenge."
Part of the problem in raising base prices is the influence of other producers and their approach to pricing, Harshman acknowledged.
"By holding, it means: Do you get that higher realized price in the market? If you do, then its holding. If you dont, its because either another producer doesnt think its the right time to raise prices, or they do and then they cut special deals in the background and it erodes the price," he said.
"Volume is important, just like it is in the carbon steel business, because of the fixed-cost structure on the front end of your business, mainly melt shops and the hot-rolling. So (its a question of): Are you going to be the first one to blink? Sometimes we think the fundamentals justify a price increase, so we hold out. But if we begin to lose orders that are important and are strategic and are significant to us from an overall scale standpoint, then well back off," Harshman said.
"Were generally not the kind of company that has the attitude to be the first to cut or lower prices. We may be one of the first to raise prices, because we like a return on capital employed," he added.
Meanwhile, Harshman said there may be grounds for a trade case against Chinese stainless imports, which have had a "negative effect on pricing" after a slowdown in the Chinese economy in spring 2012 prompted a wave of imports.
"In our view, that was a surge of imports that violates the trade laws and arguably was being dumped. The challenge that any U.S. producer has under the trade laws is that you have to prove a sustained period of damage before you can contemplate bringing a trade case. That sustained period, generally speaking, is about two years. So if that (surge) started around the middle part of 2012 and were only in the middle of 2013 now, we still have one year," he said.
"It is complicated to bring a trade case, and expensive ... so the industry needs to be sure of their facts, and that takes time," Harshman said. "We will continue to monitor the situation, and if the facts remain as they are, we would certainly look at that."