NEW ORLEANS At least two stainless steel melt shops in the United States could close in the next three years as the global market corrects for overcapacity, Steel & Metals Market Research GmbH (SMR) managing director Markus Moll told delegates at the annual conference of the International Stainless Steel Forum (ISSF) in New Orleans.
The flat products sector would likely see capacity rationalization in most regions over the next few years before demand improves in the latter part of the decade.
"In Europe, we see mostly reductions until 2016, and only in 2018 and 2019 do we think the market will need more capacity. So it would be good for some of the producers not to scrap the furnaces that (they) are not using now, but to leave them sitting there until 2020," he said.
"In North America, we have the addition of Outokumpu (Oyj)s Calvert, Ala., plant last year, but we also see reductions in the United States," Moll said. "We see at least two melt shops being closed down."
While China is expected to continue ramping up its production capacity through 2020, this will eventually lead to a situation in which "the Chinese are not necessarily the cost leaders anymore," he noted.
"In 2020, there will be producers that have capacity to produce over 5 million tonnes of stainless, but this volume will not bring you cost advantages anymore," he said.
"I think we will go to a regional market," Moll said. "Were already in a situation where 80 percent of stainless consumed in a region is also produced in that region. I bet you that in 2020, this global selling will become less (common) and import penetration will have peaked out."
The beginnings of this trend can already be seen with "cost buyers" like Wal-Mart and Ikea, which he said are increasingly sourcing their stainless cookware from local fabricators.
However, Moll noted that even though the global stainless market has grown over the past few years, the industry has struggled to convert that into profitability. Market capitalization figures show that "nobody is worth what they should be worth," he said.
"AK Steel (Corp.) you can buy today for less than $500 million. Outokumpu is somewhere around 1.5 billion euros ($1.9 billion). These values by no means reflect the true values of the companies, of course," he said. "At the moment, Im surprised that there are not more financial investorsmaybe private equity companies or Russian oligarchsthat are looking at this business and buying themselves a true bargain."
Companies looking to increase value by concentrating more on lower-volume specialty segments than commodity grades also run the risk of trying to "be everything to everybody," Moll said.
"You cannot do everything from your one production system," he said. "If you want to participate in high-value segments, you need to separate it from your high-volume operations, maybe through a separate company. You cannot produce heat-resistant grades or super duplex in the same line where you want to be competitive on 304. It doesnt work."
Moll believes the U.S. stainless market has survived the global economic slowdown better than the European stainless market partially because of its heavy reliance on a service center distribution system that is separate from producers, he said.
"When you look at the big distributors here, they have supply bases which they do not change with every e-mail they get from China. They stay long-term with the same suppliers, though they may change volumes a little here and there," Moll said. "I think a mill-owned distributor is not as efficient as a family owned distributor."