Stainless Steel

MM-IndX_TRENDS_Chart_February2016_FNL-TOPVALUE100

The trends from our February Metal Price Index were more flat than down in February and it still looks like a bearish market for most of the metals we track.

Free Sample Report: Our February Metal Buying Outlook

Only the Renewables and GOES sub-indexes had price increases for the February MetalMiner IndX reading.

Many producers are seeing their profits decline to the point where capacity shutdowns are necessary. Freeport McMoRan’s stock price fell 45% in the first two weeks of January, after it hit a 13-year low in December.

Alcoa, Inc. — already in the process of splitting itself into two companies and curtailing its smelting business — saw its shares reach a seven-year low this month.

Brazilian miner Votorantim Metals announced in January its intention to suspend two nickel operations. In Australia, Clive Palmer’s Queensland Nickel said it would lay off 240 workers near Townsville. These announcements are definitely a sign that mining companies are starting to struggle because of the low prices.

After shuttering its grain-oriented electrical steel operations, Allegheny Technologies, Inc., further signaled it would not supply commodity-grade stainless steel at all this year.

With all of these cutbacks one would think that supply, eventually, would have to be constrained but it’s difficult to measure just how much overcapacity is truly out there.

China’s propensity to dump — and the resultant export market saturation — has still not been curtailed in any significant way. China is producing too much steel, aluminum, copper, solar panels and other goods such as plate glass and chemicals for the domestic market, and usually exports the excess at cut-rate prices. This was reflected in our metal price indexes in this month.

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The Stainless MMI fell by one point to 51 in February. Although nickel prices didn’t decline sharply in January, prices made a new 12-year low.

Free Sample Report: Our New February Metal Buying Outlook

Nickel was the worst performer among industrial metals in 2015. Interestingly, now analysts see nickel as having the greatest recovery potential. On average, analysts expect nickel prices to rise 20% this year and by almost 40% next year.

Stainless_Chart_February-2016_FNL

The main reason why analysts expect such a recovery is because nickel has fallen harder than any of its peers, being the only metal trading below the price lows of the 2008 financial crisis. However, to us, the fact that a metal has fallen in price is not reason enough to expect higher prices any time soon.

Shutdowns

Another factor making analysts turn bullish on nickel is that they believe nickel is likely to see immediate cutbacks. Brazilian miner Votorantim Metals announced in January its intentions to suspend two nickel operations, which would mark the first meaningful shutdown in the West.

Also, in Australia, Clive Palmer’s Queensland Nickel said it would lay off 240 workers near Townsville. These announcements are definitely a sign that mining companies are starting to struggle on low prices, but companies can struggle for a long time before shutdowns actually occur. The nickel market is facing the same issue as any other industrial metal: supply is doing anything it can before shutting down.

Believing that a wave of shutdowns is about to come among nickel producers seems like too much to expect from producers. Shuttering capacity remains challenging from both financial and social perspectives. In addition, non-China producers keep convincing themselves that Chinese nickel pig-iron producers will close first, partly because of the nickel ore constrains after Indonesia’s export ban and partly because of the perception that NPI makers are at the top of the global cost curve.

The issue with that prediction is that NPI producers have managed to cut costs and find a substitute to Indonesian ore — supply from the Philippines.

Compare Prices With the January 2016 MMI Report

We believe that shutdowns will probably come gradually since any individual closure will give hopes of survival to the rest of the market participants as they face less competition, encouraging those left over to keep running.

What This Means For Metal Buyers

Some people might see nickel as an attractive asset just because it looks “cheap” compared to historical levels. That could be true in the long term, but the timing could be way off. Right now, we don’t see any signs of a bottom. Nickel prices will likely turn around with the rest of the base metal complex, but that time hasn’t come yet. Stainless buyers should stay disciplined to their buying strategy.

Exact Stainless MMI and Nickel Prices, Trends

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For the foreseeable future, Allegheny Technologies, Inc. (ATI) is out of the flat-rolled stainless commodity business as well as the grain-oriented electrical steel (GOES) market.

Free Download: The January 2016 MMI Report

ATI will be focusing on global markets with high barriers to entry. As we reported last month, ATI is reducing its exposure in commodity products by idling its Midland, Pa., plant, a commodity stainless facility, and its Bagdad GOES production facility in Gilpin Township, Pa.

ATI's Brackenridge facility is the future and commodity stainless is its past. Source: ATI

ATI’s Brackenridge facility is the future and commodity stainless is its past. Source: ATI

Earlier this week, ATI reported in its earnings call a net loss of $378 million for 2015 as compared to a net loss of $2.6 million in 2014. ATI’s flat-rolled products business segment is to blame for the staggering losses. Operating losses for flat-rolled products were $242 million for 2015. For this reason, Rich Harshman — ATI’s chairman, president, and CEO — stated that ATI is taking “rightsizing actions” to return the segment to profitability as quickly as possible and “execute our strategy for sustainable long-term profitable growth.”

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Thanks to a new law it looks increasingly likely that, for the first time in 33 years, new DeLorean DMC-12s will roll off an assembly line in 2017.

Free Download: The January 2016 MMI Report

For you millennials out there, that means you could buy and drive the two-seat sports car that Doc and Marty turned into a time machine in the “Back to the Future” movies. John DeLorean left his job at General Motors to start his own automobile company in the ’70s. His company, the original DeLorean Motor Company, went bankrupt in 1982 but only after it produced the DMC-12, which became popular after being featured in the film.

Go Back to the Future and own one of these in 2017. Source: DMC-Texas.

Go back to the future and buy a new DMC-12 in 2017! Source: DMC-Texas.

Stephen Wynne, the founder of the new DeLorean Motor Company-Texas, started producing “newly assembled” DMC-12s in 2008. The new company acquired DeLorean parts from the original suppliers and helped hobbyists maintain and refurbish their DMC-12s.

What Does This Mean to Metal Buyers?

It means more stainless steel will be necessary for the Humble, Texas-based automaker to start an assembly line to build all of those new cars! We’ve previously written about how the DMC-12 is pretty much the only stainless-steel-exterior car ever built. Wynne told SFgate.com that the new DMC has enough parts to assemble about 300 cars and a new DMC-12 will cost around $100,000. The tagline on their website is even “clean and timeless design. Stainless steel.”

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North American Stainless (NAS), the US flat-rolled stainless market leader and the lowest cost producer, has a decision to make.

Free Sample Report: Our January Metal Buying Outlook

Will NAS implement another base price increase effective in March or April? Last month, NAS, never known to be a follower, announced a base price increase which was half that of its competitors Allegheny Technologies, Inc. (ATI), AK Steel and Outokumpu Coil Americas. This meant that the only increase buyers would be paying was the less aggressive 2-discount point adjustment (approximately $0.04 per lb. increase on 304 base gauge).

Will NAS increase base prices in March or April? Source: Adobe Stock/Jovanning.

Will NAS increase base prices in March or April? Source: Adobe Stock/Jovanning.

Stainless base prices may have gone up since January 1, but buyers should still be paying a lower net price for standard 304 2B this month than they did in December. The increase on base gauge 304 was offset by the over $0.05 per lb. decline in the 304 alloy surcharge. 304 Base gauge net prices should decline in February since NAS’ February 304 alloy surcharge will be $0.3321 per lb., which is $0.0031 per lb. less than the January surcharge.

North American Stainless’ Market Position

NAS is in the best position to endure depressed stainless prices longer than any of its North American competitors, but now they are losing money, too. Acerinox, NAS’ parent company from Spain, posted a loss of over €8 million in Q3 2015, after being in the black the previous three quarters. Acerinox’s 2015 results will not be announced until February 29, but I would expect the results to be worse as alloy surcharges continued to decline through the end of 2015.

Price Hike?

I believe NAS will announce another base price increase once its March production is filled, which should be in the next week. The base prices in Q4 2015 were unsustainably low as a result of Outokumpu Coil Americas’ push to fill its Calvert mill with lower prices than NAS.

Free Download: New! The January 2016 MMI Report

As long as mill lead times remain in check, service centers will support the domestic mills so that they can keep inventory as lean as possible while still being able to provide for the manufacturer’s requirements. My experience has been that when alloy surcharges are still declining, price increases are easier for the market to accept. Another base price increase is not only feasible for March or April, it is necessary to realign base prices to manageable levels for producer, service center and manufacturers. NAS needs to lead the next price increase and act like the market leader.

Just like Oprah giving out cars, our January Metal Price Trends report was generous with the dead cat bounces this month. You get a dead cat bounce, copper! You get one, too, aluminum! You get a dead cat bounce, raw steels! Everyone gets a dead cat bounce!

Free Sample Report: Our January Metal Buying Outlook

Okay, not everyone. Construction, stainless steel, renewables and rare earths all lost ground and automotive was merely steady.

MM-IndX_TRENDS_Chart_January2016_FNL-TOPVALUE100

Still, it’s the most positive movement we’ve seen for many of these metals since early last year. We say they’re dead cat bounces — a cruel-sounding investment term for a temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend (sorry, kitties) — because there is little reason to be optimistic that any of these gains will continue.

Stop Me Before I Bounce Again!

The main driver of commodity, and now stock market losses, has been the slowing Chinese economy and it’s looking worse this year than it did at the end of last. Financial institutions such as RBS are even advising clients to sell everything, save bonds, that’s not tied down.

This is great news for buyers but exactly what metal producers don’t want to hear. What’s worse, for them, is that everything the Chinese government is doing to try to turn their economy around, including a panic button system for its stock markets that actually caused more panic, isn’t working. My colleague Raul De Frutos also pointed out that purposely devaluing the yuan actually hurts metal prices.

How Low Can it Go?

The other big driver of the commodity price rout, the price of oil, shows no signs of turning around, either. Oil hit $30 per barrel this week stoking bankruptcy fears among US energy companies and it even temporarily created some nervousness among OPEC nations who clamored for an emergency meeting.

So don’t expect these price increases to continue as transportation and production costs follow oil’s race to the bottom. My colleague at our sister site Spendmatters, Kaitlyn McAvoy, reported that Goldman Sachs is predicting $20 per barrel for oil this year.  It’s not a very happy new year for metal producers… or cats.

Our Stainless MMI fell to 52 from 54 in January. Nickel is hovering near 12-year lows. Not even a weaker dollar helped lift prices over the last month.

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Free Sample Report: Our January Metal Buying Outlook

The US flat-rolled stainless mill base price increases announced last month will not even raise the net price due to falling values.

Stainless_Chart_January-2016_FNL

With prices at these low levels, it’s estimated that 60-70% of the industry is underwater. Some might wonder, “why don’t prices go up, then?”

As we’ve said before, markets don’t care about how profitable producers are. They look at the supply/demand equation and while companies don’t cut production: falling demand + constant/rising supply = falling prices.

Markets Move Prices

The main problem is that producers aren’t throwing in the towel, hoping for demand to come back and lift prices. The only focus of nickel producers at this moment is to reduce production costs to be ready when prices come back up. The problem is that China is not recovering from its economic flu, and someone has to give in if the producers want to see higher prices.

A clear example is the construction of the Nova nickel mine in Australia. Starting production in December 2016, the mine is expected to deliver about 26,000 metric tons of nickel annually for the next 10 years and operate on a low-cost basis of around $3,500/mt, less than half the current price.

Vale Indonesia is also continuing to reduce output costs to stay competitive. Its production was up 15% in the third quarter compared to the same period a year earlier. In Indonesia, six smelters are expected to start operations this year with a total capacity of 50,000 mt of pure nickel (or 500,000 mt of nickel pig iron).

Tsingshan Holding Group is expanding its processing plants in central Sulawesi, with capacity of 90,000 mt of pure nickel. That alone is more than the 80,000 mt that eight Chinese nickel producers recently announced they were collectively cutting.

What This Means For Metal Buyers

Nickel prices are at low levels, but while production cuts aren’t materializing, it’s hard to imagine a meaningful price increase.

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Stainless steel base prices are now certain to rise in January. North American Stainless (NAS), the  stainless market leader and lowest-cost producer, announced on December 18th a flat-rolled stainless price increase that will go into effect on January 1st.

NAS Base Price

NAS’ stainless cold-rolled increase will be achieved by lowering discounts by two points, which means an increase of approximately $0.04 per lb. for 304 base gauge. The hot-rolled stainless — continuous mill plate (CMP) and discrete plate — increase will be $0.02/lb., which is the same increase that Outokumpu Coil Americas announced on December 10th.

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Outokumpu’s stainless plate division recently announced an increase on mill plate by decreasing discounts by two points. NAS will also increase polishing extras costs by reducing the polishing discount 10 percentage points, which reinforces the same increase announced by Outokumpu Coil Americas. The impact of the polishing extras increase will be almost $0.02/lb., depending on material thickness.

North American Stainless has joined other mills in increasing base prices. Source: Adobe Stock/Jovanning.

North American Stainless has joined other mills in increasing base prices. Source: Adobe Stock/Jovanning.

As I wrote last week, even with the mill announcements, the effect of the base price increases will still make net prices for 304 2B base-gauge and CMP lower than net prices were this month. 304 polished product prices will still be about the same as they were in early December and still lower than the overall net prices of 2015’s fourth quarter. NAS’ January 2016 304 surcharge will be $0.3352 per pound, a decrease of $0.0544 per pound.

430 Prices

What will the impact be to 430 prices, much of which is polished?

430 2B prices will increase in January by approximately $0.025/lb. For 430 polished 18-gauge (.048 inches thick), prices increase to around $0.045/lb. January 2016’s 430 surcharge will be $0.1338/lb., a slight decrease from December 2015’s surcharge. Looking a few months back, though, 430 surcharges have decreased $0.04/lb since October 2015. Since 430 is non-nickel bearing, the surcharge fluctuations are not as drastic as 304, so the base price increase will make 430 polished net prices slightly higher than in recent months.

Free Download: The December MMI Report

As I wrote in last week’s piece, the mills need to increase base prices for the long-term health of, not only themselves, but also the service centers which are responsible for the majority of stainless steel flat-rolled distribution. As NAS supported only a moderate increase, I would expect another base price increase in subsequent months if the domestic mill lead times push out beyond 10 to 12 weeks. Once everyone returns from the holidays to begin 2016, we will have a better idea of how much of an impact service center restocking will have on stainless, flat-rolled mill lead times.

If you need a last-minute gift idea, look no further than Julia Child and Barcelona’s La Sagrada Familia.

old julia child looking at stainless steel knives

Julia feels some steel. Sam G/Flickr

low angle sagrada familia bluesky clouds

When I visited the historic site in 2013, progress was still — shockingly — slow. Photo by Taras Berezowsky

You see, both icons have recently steered us toward the stainless steel world. Child, for her part, wrote “A Life in France,” which my colleague Katie Benchina Olsen has been reading lately, and in it, according to Katie, Child complains that stainless kitchen knives dull too easily. For its part, the procurement committee of the Basilica of La Sagrada Família, the historic Antoni Gaudí-designed church in Barcelona, Spain, has been sourcing its stainless steel material needs exclusively from Outokumpu since 2013 and recently put out a press release about its supplier relationship with the Finnish producer (although we can’t really decipher the reason for the release, as there’s nothing particularly newsworthy in the whole thing…perhaps a new PO for the next phase of construction, which has dragged on for more than a century?)

Free Sample Report: Our Annual Metal Buying Outlook

At any rate, we thought it funny to riff on an oft-used phrase around the office and in our metals outlook analysis in regards to buying metal forward when prices are falling, which is: “don’t try and catch a falling knife” – in other words, you’re sure to get hurt every time. Read more

The Indian government recently imposed import duties, for a term of five years, on stainless steel from China, the US and the European Union. The move has evoked mixed reactions from industry and analysts.

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The anti-dumping duties are an attempt to protect local companies from “unfair competition.”

Anti-dumping duties, on cold-rolled flat stainless steel products, ranged from 4.6 to as high as 57.4%. Along with the above-named countries, imports from South Korea, South Africa, Taiwan and Thailand will also be taxed.

Will the idling of Midland by ATI take a bite out of stainless supply? Only time will tell. Source: Adobe Stock/Jovanning.

India has taken steps to protect its domestic stainless industry from cheap imports.  Source: Adobe Stock/Jovanning.

While a large section of India’s domestic steel industry welcomed the move, some experts opined that the duty did not make much sense, except, of course, for protecting local steelmakers.

In an interview with the Economic Times, N.C. Mathur, director of corporate affairs at JSL Steel and the president of the Indian Stainless Steel Development Association, said that the anti-dumping duties on cold-rolled stainless steel products were “not likely to help the domestic industry in any way.”

That was because they were imposed after the review of an earlier, similar, notification, and all the conditions remained the same in the new tariff structure.

Do These New Dumping Duties Even Matter?

According to Mathur, the duties are restricted in terms of cold-rolled width — from 600 mm to 1250 mm. The same terms and conditions were already in place under the earlier anti-dumping law, yet, importers had been easily circumventing it over the last five years.

How? They would simply import products measuring above 1,250 mm.

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