Stainless recovery grinds into gear
By Staff -- Purchasing, 9/2/1999
World stainless steel prices are now rebounding from historic lows seen in 1998, according to a market analysis by the J.P. Morgan brokerage. "Rising demand, industry consolidation, shrinking overcapacity, and higher raw-materials prices should result in higher stainless steel prices in the waning months of 1999 and 2000," the brokerage's report says. "Global stainless prices will turn upward again in the fourth quarter of this year owing to capacity reductions in Asia, success of import restrictions in the U.S., and higher nickel and ferrochrome prices."During 1999, stainless steel prices are expected to rise 10% in Europe, 7% in the U.S., and zero percent in Asia. "This should stabilize the market and set the stage for much higher prices in 2000," the report says.
In 1998, stainless prices fell 18%-36% from 1997 levels. Even now, prices remain below historic average prices. In Europe, cold-rolled sheet is selling for less than 73¢/lb, about 50% below normal levels and 61% below the $1.85 peak set in autumn of 1995. In the U.S., where mills are reporting 99¢/lb prices for benchmark Type 304 cold-rolled sheet, J.P. Morgan says prices remain 16% below normal. Purchasing's buyer surveys shows Type 304 actually selling at 79¢, compared to a prior cyclical peak of $1.20/lb in summer of 1995.
Armco, Allegheny Ludlum, and other U.S. stainless steelmakers are trying this summer to boost selling prices on stainless hot- and cold-rolled strip, sheet, and continuous mill plate by an average of 7%. Dennis McGlone, VP/commercial for Armco, says the action is meant to "initiate recovery of prices, which have fallen by as much as 40% on some stainless products in the past three years, and to offset a steep rise in the cost of certain raw materials in recent months, especially nickel."
An upward trend in London Metal Exchange (LME) nickel prices should act as a catalyst for better conversion margins, the Morgan report says, since nickel is a vital ingredient in stainless steel. Forecast from J.P. Morgan sees nickel prices rising from an average $2.75/lb in 1999 to $3.00-$3.50/lb in 2000. In 1998, nickel sold in the U.S. for an average $2.18/lb. Through mid-1999 the alloying metal sold at $2.37. Already, U.S. specialty steelmakers have revised their nickel surcharge trigger from $3.50 to $2.00/lb, applicable to all stainless steel products effective with October shipments. The October nickel surcharge will be based on the August LME average daily cash price. "Since December 1998, average monthly nickel costs have risen dramatically from $1.76 to $2.58/lb in July," remarks Eugene Salvadore, CEO of J&L Specialty Steel. "The present surcharge basis for nickel isn't commensurate with the nickel cost component associated with current transaction prices and does not provide the necessary mechanism to protect against potential further escalation and volatility in nickel prices."
Demand for cold-rolled stainless steel sheet has picked up during the year. J.P. Morgan now forecasts an annualized global consumption growth rate of 4% in fourth quarter 1999, rising to an annual rate of 6% in 2000. However, potential risks to improved stainless prices may surface if European producers refuse to cut production, exacerbating the continent's capacity glut. "As Europe represents 45% of world stainless steel production, the surplus could become more pronounced if global demand growth in 2000 does not return to historic levels," says the J.P. Morgan report. Other potential problems for the world stainless market cited in the report include new U.S. trade restrictions (which could spell trouble especially for European and Asian stainless steel producers) and potential closure of the Chinese market to imports from Asia.
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