Stalled manufacturing growth slows North American purchasing
By Tom Stundza -- Purchasing, 7/14/2007
North American use of stainless steel remains erratic: After increasing a robust 21% in 2006, consumption is on pace to decline by 7–10% in 2007. That's partly because of weak durable goods production and partly because of the explosion in mill product prices, which have increased by almost 90% over the past two years. However, rising inventories and weakened demand for stainless steel products have pressured prices in the past few weeks.
Overall demand has been strong from the chemical process industry, oil and gas markets, makers of electrical energy equipment and the aerospace and defense industries. However, demand for benchmark stainless sheet commodity products for appliances, motor vehicles and other consumer goods have been lower primarily because of U.S. service centers and their customers reducing inventories and remaining cautious due to increasing nickel surcharges, says L. Patrick Hassey, CEO of Allegheny Technologies in Pittsburgh. He notes that customers of ATI's Allegheny Ludlum stainless steelmaking subsidiary "are being cautious with their inventory levels for our nickel-based alloys and superalloys due to the unusually high cost of nickel."
The plate market still is booming but bar-product customers are ordering cautiously as transaction prices continue to soar—especially since mills and distributors are raising prices monthly in line with the alloy-surcharge-increase formulas. Atop that, it's said that importers aren't dropping prices in order to win business.
Mill bookings are low and delivery leadtimes short since mill depots have plenty of material for sale. Buyers appear to be holding back on purchases since prices are described as exorbitant and only 2% of those polled lately see prices dropping anytime this summer. That's why most buyers are skeptical about the proposition from MEPS (International) analysts that North American stainless steel soon should be the peak of the current pricing cycle.
The buyers also are peeved at extra price-increase proposals suddenly being floated by AK Steel for July. The Middletown, Ohio steelmaker wants to boost prices for 400-series stainless steel automotive exhaust alloys by 10–16% in July. The transaction price will increase by 10%, or $120/ton, for Type 409, and by 10%, or $180/ton, for Type 439. Prices will also increase by 10% for Type 409 Ni, Aluminized 409 and Aluminized 439. Prices for chrome and columbian alloys 18 Cr-Cb (a), 15 Cr-Cb and 410 Cb are set to rise by about 16% due to recent increases in the cost of columbium, which is also known as niobium.
All of these surcharges are atop existing raw material-surcharge formulas for nickel, chrome and other alloys. However, a MEPS market analysis suggests that surcharges for nickel and other alloys will represent around 78% of the transaction price for Type 304 cold-rolled sheet in coil in July. But, by August, MEPS expects transaction prices to be relatively stable as the upward movement in the alloy surcharge finally comes to an end.
The research house in Sheffield, England, expects nickel prices "to correct significantly" during the second half of 2007 to around $35,000/metric ton ($15.88/lb) by December—as compared with $44,500 ($20.19) in June. That will be a function of slowing demand from the stainless sector in all regions, says MEPS analyst Peter Fish. "Lower nickel prices will, in turn, feed into lower alloy surcharges on stainless," he adds, "which is why we are forecasting that stainless steel prices also to fall over the second half of this year."
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The anticipated growth rate pales in comparison with the 16.7% production increase in 2006 to 28.4 million tons. But, the forum, a unit of the International Iron and Steel Institute in Brussels, say that's because a lot of that output created very high inventories in many countries that are being reduced in the first half of this year.
Asia, the world's largest stainless steel producing region, is expected to show continued growth of approximately 12% this year to 16.9 million metric tons. China will be the driving force in the stainless steel industry in 2007, followed by India and then South Korea. It's anticipated that stainless steelmaking in the Americas will decrease in 2007 by 3.4% to 2.9 million metric tons, in contrast to 2006 when the region increased its output by approximately 10% to almost 3 million.
Production in Western Europe and Africa is expected to decline by 2.7% to 9.7 million metric tons in 2007, caused by stockpile-reduction efforts and increased imports from Asia. In contrast, Central and Eastern European production is expected to rise.
The forum's membership doesn't anticipate a decline this year in stainless steel demand from the fabricating industries—especially as the shift to the use of ferritic-grade stainless steels appears to be taking hold, which should lead to lower and more stable prices in the global market.
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