Specialty grades are plentiful and cheap
By Tom Stundza -- Purchasing, 7/5/2001 2:00:00 AM
Stainless steel buyers see neither shortages nor price inflation in their immediate futures, according to recent Purchasing surveys.
"The market is soft," says Ken Krzykowski, purchasing manager at stamping house Wrought Washer Manufacturing in Milwaukee. "Most items are readily available."
Todd Anderla, manager of material control in the procurement department of pressure vessel fabricator Silvan Industries in Marinette, Wis., adds that "There's much talk about steel mills trying to boost prices in the second half, but we don't see that happening [since] purchasing is down."
At least one major producer agrees: "The weak U.S. industrial economy is resulting in very weak stainless steel demand, reduced shipments and significantly lower prices," acknowledges Bob Bozzone, chief executive officer of Allegheny Technologies in Pittsburgh, the largest supplier of stainless steel sheet.
Supporting buyers' observations are these vital stats on the stainless industry—
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Use has been flat at about 2.3 million tons for the past two years, according to downwardly revised data. Demand for stainless steel products rose briskly during first half 2000, but purchasing slowed in the third quarter and collapsed in the fourth. Market insiders see a slide of nearly 7.5% this year to 2.13 million tons. Although stainless demand from aerospace, power generation and food service equipment markets remains healthy, consumption has deteriorated among automotive, major appliance, heavy equipment, petrochemical and other process industries.
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The market is oversupplied and both mills and service centers are carrying extremely high unsold inventories. At the start of April, U.S. service centers held some 1.4 million tons of stainless steel, enough to satisfy two-thirds of the estimated 2000 demand (2.1 million tons). Atop that, stainless and specialty steel imports remain high at 27% of apparent supply and are on track to beat last year's record volume of 894,000 tons. Upshot: Delivery leadtimes are just two weeks from mills and even quicker from processing distributors.
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These supply and demand factors have translated into weak pricing for stainless steel. "The current trend of price deflation for many commodity products has also affected commodity specialty steel grades," says a spokesman for major stainless and specialty steel producer Allegheny Technologies. For example, transaction prices for cold-rolled stainless sheet fell 12% between December and May to their lowest level since Purchasing began tracking transaction prices back in 1982.
The domestic stainless steel economy was supercharged into last summer, powered by brisk consumer and business spending on durable goods. Orders for stainless steel and other specialty steel grades grew at a 10%-20% annual rate during first half 2000. Prices were at their highest levels in three years. And then the buying stopped. New-order bookings for second-half deliveries all but disappeared, and prices began a steady decline.
Now, analysts say excess stocks—at both the mills and service centers—will have to be liquidated before any price improvements can be made. And that may take time because the ready availability of sheet, plate and bar products from mills is slowing elimination of stockpiles among service centers.
Analyst John Anton at DRI-WEFA says stainless supply is plentiful worldwide because the global market has yet to digest additional output from capacity expansions that occurred between 1997 and 2000. From the mid-90's to last year, world stainless production rose from an average 14 million net tons annually to a record 19.8 million. "Even though capacity expansions should slow dramatically in the forecast, we see no shortfall in markets over the near term," Anton says. Even if world production falls by the projected 1%-2%, he says, "inventories are high and demand growth too weak to do more than move markets toward balance."
With inexpensive imports expected to take 27% of the U.S. market again this year, domestic stainless steelmakers are complaining loudly. "Imports continue to land on our shores in huge and growing numbers," says H.L. Kephart, chief executive officer of G.O. Carlson Inc., specialty steel producer in Thorndale, Pa., and current chairman of the Specialty Steel Industry of North America (SSINA) trade group. "Our competitive, viable industry continues to lose substantial market share to waves of dumped and subsidized imports."
Dumping penalties restricted some stainless imports to the U.S. in late 1999 and early 2000, including stainless steel plate in coils from Belgium, Canada, Italy, South Africa, South Korea and Taiwan, and stainless steel sheet and strip in coils from France, Germany, Italy, Japan, Mexico, South Korea, Taiwan and the United Kingdom. However, overall imports of specialty steel increased 7% to 894,009 tons in 2000 from 834,412 tons in 1999.
This year, SSINA has stated that "Imports of specialty steel continue to wreak havoc with more than a quarter of the U.S. market lost to foreign-made product." The group has called on the Bush administration "to act promptly to implement both short- and long-term solutions to this pervasive problem."
David Phelps, president of the American Institute for International Steel, which represents importers, counters that "Trade quotas and other protectionist programs always negatively affect downstream users." He suggests that White House trade officials "use market incentives to promote needed changes in the steel industry while safeguarding steel-consuming industry competitiveness."
The nickel factor
But even if stainless demand improves and imports fall, history suggests that stainless steel prices won't revive until prices for its major raw materials, especially nickel, begin to recover as well.
While speculative buying boosted daily nickel prices for a brief period this past spring, nickel on the London Metal Exchange (LME) averaged less than $3/lb through May compared to almost $4 for all of 2000. Alloy surcharges for Type 304 cold-rolled stainless sheet dropped to 8¢/lb in April from 22¢ a year earlier. And, since nickel supply has overshot demand as well, prices should remain weak through next year, says analyst Nick Moore at J.P. Morgan in London, who sees LME nickel averaging $3/lb this year, then dropping to $2.75 in 2002.
Growth in consumption of stainless steel is, in fact, slowing worldwide, which has translated into lower growth for nickel consumption as well. After jumping as much as 7% in 2000, nickel consumption is expected to gain only 2.6% in 2001 and just 1.9% in 2002.
The International Nickel Study Group, which recorded world nickel supply at a deficit of 46,300 net tons in 2000, places global supply for 2001 at a price-depressing 38,600-ton surplus. For March (the most recent available), the group's data show a nickel supply surplus totaling 7,700 tons, representing an increase from the 5,500-ton surplus recorded in February.
Stainless producers think the Federal Reserve's aggressive interest rate cuts will reverse downward trends in consumer and business confidence, stimulating greater demand for the speciality steels. They also believe that weaker first-half demand and low prices will make the U.S. market less attractive to foreign suppliers, which should facilitate a drop in inventories. Lower stainless production should also ease downward pressure on prices, they suggest.
But market analysts suggest that lingering depression in nickel prices and still-high imports this summer will probably doom early attempts to boost certain product tags (like the Fort Wayne Specialty Alloys Division of Slater Steel's attempt to increase stainless angles tags by 7% in a market that is 45% controlled by imports). Alternatively, some mavens think Universal Stainless & Alloy Products might be able to push through average 5% price hikes on such niche products as 15-5 and 17-4 precipitating hardening grades, Type 400 series, and other straight chrome grades of stainless steel products. That's because the Bridgeville, Pa.-based firm's "strategy is to focus on products for niche markets within the aerospace, petrochemical and power-generation industries," notes CEO Clarence "Mac" McAninch. While the slowing economy has resulted in a reduction in sales of commodity and tool steel products, McAninch predicts that "The high level of demand for niche products will continue throughout 2001."
Mills seek new marts
Business cycle aside, marketers persist in their efforts to find new end-product applications for stainless steels. Some recent successes—
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West Marine of Watsonville, Calif., now attaches its waterproof audio speakers to host boats and yachts with next-generation stainless steel fasteners.
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The new Liberator muffler for Class 8 trucks from Advanced Exhaust Technologies' of Auburn Hills, Mich., is made from electro-polished stainless steel that has been roll formed.
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The new GS-3000 hopper weighing systems for poultry from Gainco Inc. of Atlanta are constructed from stainless steel components.
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Foodservice equipment manufacturer Eagle Group of Clayton, Del., now uses stainless steel exclusively for its line of sinks, worktables and buffet units and shelving products.
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Boston Scientific of Natick, Mass., makes coronary stents—small, slotted stainless steel tubes—implanted during angioplasty to hold arteries open and improve blood flow.
SSINA has had minimal success in promoting use of stainless steel in building and construction applications and highway and public works projects, so some mills wants to push into consumer products.
Richard Wardrop, chairman and chief executive of Middletown, Ohio-based steelmaker AK Steel, thinks the stainless steel industry should focus more on expanding automotive uses for its products. Stainless steel is lightweight and strong and its shiny appearance and ability to withstand exposure to the elements without rusting makes it an attractive option to car manufacturers, he says. Today, the auto industry accounts for less than 15% of global stainless steel consumption. "The idea of a totally stainless steel frame is not a realistic one," Wardrop says, "but we are looking to make more inroads in large trucks and buses, and I'm sure stainless steel will be used in some applications." He thinks component manufacturers may look to stainless as an option in production of control or suspension mechanisms and fuel tanks
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