Stainless Steel

Allegheny Technologies, Inc., reported in its first quarter earnings call this week that its high-performance materials and components segment sales were up. Sales were $493 million in the first quarter, up approximately 8% compared to the fourth quarter of 2015. 73% of segment sales were to the aerospace and defense market.

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Operating profit increased by nearly 40%, compared to the fourth-quarter 2015. Segment operating profit was 5.9% of sales.

New Generation of Jet Engine Parts

ATI’s product mix improved through increased sales of next-generation jet engine advanced materials. Sales of nickel-based alloys and specialty alloys increased by 8%, and sales of titanium and titanium alloys increased by 17%. Sales of ATI’s precision forgings increased 15%, driven nearly exclusively by growing demand for jet engine components and airframe forgings.

StuartsF35_500

ATI is very pleased with its sales of airframe and jet engine materials.

“Our differentiated products here include proprietary and unique alloys, as well as products that few others can make,” ATI CEO and President Richard Harshman said, “such as ATI 718+ alloy, Rene 65 alloy, ATI 720 alloy large billets, plasma arc-melted titanium alloys, powder metals, titanium aluminides, as well as hot-die forgings, isothermal forgings and titanium investment castings.”

PAM Power

ATI is currently the only qualified plasma arc melt producer of titanium alloys used for jet engine rotating parts.

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PAM is the preferred process for titanium alloys used in jet engine rotating parts for much of the industry.

“ATI has the most powerful open-die press forge in the industry, which enables fine-grained structure in complex nickel-based super alloy billet and the billetizing of powder alloys,” Harshman said. “ATI is one of only two independent and integrated qualified producers of nickel super-alloy powders and isothermal forged parts.”

Our Stainless MMI didn’t move for the third-consecutive month. Despite a momentary recovery in commodity markets (thanks in part to the recent rally in oil prices), nickel prices were unable to move up.

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Although some industrial metals, such as steel and tin, moved up in Q1, important metals such as aluminum, copper and nickel are all lagging badly in this base metals rally. That gives the rally less credibility and makes us think that markets could pullback as soon as momentum vanishes.

Trade Case

The biggest headline in the U.S. involves Chinese stainless, cold-rolled-anti-dumping and countervailing duty investigations. The U.S. International Trade Commission made a unanimous preliminary determination on March 25 that unfairly-traded imports of stainless steel sheet and strip are causing injury to U.S. stainless producers. The petitioners were AK Steel, ATI’s Flat Rolled Products Division, North American Stainless and Outokumpu Coil Americas.

Stainless_Chart_April-2016_FNL

With the threat of anti-dumping petitions looming, Chinese mills have been canceling open orders with U.S. customers, pushing domestic lead times for cold-rolled stainless steel beyond 8-12 weeks. For Q2, steel mills are in “controlled order entry” mode, trying to ensure volume for their key customers. With higher lead times and while China is under investigation, domestic mills are seeing the opportunity to increase stainless base prices. That could help support prices short-term, particularly if strength in the metal complex continues, which remains questionable.

Longer-term, U.S mills need to be mindful of any price increases as long as international prices remain low. Global nickel supply is still running strong as the supply side has proved quite inelastic to low prices with most producers hanging on while they hope Chinese pig iron producers will close first. Moreover, demand is not improving and stocks remain at elevated levels, which could prevent any market deficit and translate into tangible tightness.

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Stainless domestic mills have the natural advantage of short lead times due to proximity but when domestic lead times rise, metal buyers might prefer importing and if they do so successfully, domestic mills might have a hard time winning that business back.

Russia’s Norilsk Nickel’s Earnings Sink

Another headline in March was when Russia’s Norilsk Nickel, the world’s second-largest nickel producer, reported a 24% decline in 2015 core earnings (in spite of a weaker dollar offsetting losses) and forecasted global primary nickel consumption to remain flat this year.

Outokumpu Changes Freight Equalization Policy

Recently, Outokumpu Coil Americans announced changes to its equalized freight schedules. Bright annealed and rolled-on finishes will have the most significant increases since the point of equalization has been changed to San Luis Potosi, Mexico. This will amount of at least a $.05 per pound increase in these products.

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The U.S. International Trade Commission made a unanimous preliminary determination on March 25 that unfairly-traded imports of stainless steel sheet and strip are causing injury to U.S. stainless producers. The petitioners were AK Steel, ATI’s Flat Rolled Products Division, North American Stainless and Outokumpu Coil Americas.

Free Download: The March 2016 MMI Report

The ruling was no surprise as the cold-rolled stainless steel anti-dumping and countervailing duties petition is one of many petitions being filed against Chinese products in recent months. What is surprising is that cut sheet has been included in the petition. The last cold-rolled stainless anti-dumping action filed in 1998 included only products in coil form.

Injury Threshold

The petitioners need to supply at least 25% of the U.S. market to claim injury. Only NAS and Outokumpu have cut-to-length lines, so it is impossible for the mills to have significant market share in cut sheets. Service centers process the lion’s share of cut sheets for the U.S. market. Unless the service centers are willing to be a party to the petition, I think cut sheets should be removed from it.

Non-coil stainless is included in a new anti-dumping petition. Source Adobe Stock/Jovanning.

Non-coil stainless is included in a new anti-dumping petition. Source Adobe Stock/Jovanning.

Since the cold-rolled stainless petition was filed earlier this year, Chinese mills have been canceling open orders with U.S. customers. No new offers are being made to the U.S. market. Domestic lead times for cold-rolled stainless steel are now well beyond eight weeks, with some products at over 12 weeks. Steel mills are in “controlled order entry” mode for Q2 in order to ensure volume for their key customers. Read more

Outokumpu Coil Americas has changed its freight equalization policy to reflect today’s North American stainless flat-rolled supply landscape, differentiating rates among its product offerings.

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The new policy took effect for shipments beginning March 15th.

Freight train with cargo containers passing by

Will Outokumpo Coil Americas’ new freight policy help it sell more stainless steel? Source: Adobe Stock/Oleksiy Mark.

In the world of flat-rolled stainless, most prices are quoted with equalized freight rates broken out as a separate line item. Outokumpu’s announcement is important because the point of equalization has changed for several of its niche products.This change is necessary in a market in which base prices have declined to unsustainably low levels. The realignment of the freight rates was long overdue, but how will this announcement impact the metal buyer? Read more

Below is Stainless Analyst Katie Benchina Olsen’s review of the products affected by Outokumpu Coil Americas’ new freight equalization policy.

72-Inch-Wide

Using Chicago as an example, the change in freight equalization rates means that service centers and large end users will be paying for the freight for 72-inch wide on Outokumpu Coil Americas‘ Calvert, Ala., mill’s almost 900 miles compared to around 300 miles from Ghent, Ky., where North American Stainless is located. For the metal buyer, the only other options for 72-inch-wide continuous mill plate and cold-rolled stainless are TISCO, Aperam and Outokumpu’s European facilities.

Free Download: The March 2016 MMI Report

TISCO will not be a factor in cold-rolled 72-inch-wide due to the anti-dumping and countervailing duty actions that the U.S. mills filed earlier this year. Unless you buy for facilities on the East Coast near a port, this new freight policy should remain intact. On another note, Outokumpu should consider its premium on 72-inch-wide. I wrote in a previous posting that the U.S. domestic market for 72-inch-wide wide could grow if the premium over 60-inch-wide was dropped. Perhaps Outokumpu should consider optimizing its 72-inch cold-rolling mill by increasing the production of 72-inch-wide.

Bright Annealed

Bright-annealed, 48-inch-wide products now are equalized based on an 1,800 mile trip from San Luis Potosi as opposed to the 400 miles of Allegheny Technologies’ Louisville, Ohio, facility where ATI produces its bright-annealed. Read more

Few metals have confounded investors and market analysts more than nickel. Indonesia’s ban and a perceived high cost base to China’s nickel pig-iron market have, for some years, led many to believe a rise in prices was only just around the corner.

Free Download: The March 2016 MMI Report

But Nickel prices have remained hugely depressed and stocks of refined metal have continued to rise. Nickel prices slumped to a 13-year low last month and still remain below levels last seen in 2008-09, according to the Wall Street Journal. In spite of prices being so low that virtually no producers are believed to be making money, capacity isn’t being closed fast enough to have any impact. At the heart of the problem is slowing demand in China as the below graph from the WSJ shows

According to the WSJ, stainless steel production in China is projected to show no growth until 2020, and, indeed, has been more or less flat, fluctuating either side of a line, for a number of years.

Indonesian Ban

Part of the rationale for higher prices was lack of ore when Indonesia significantly reduced exports of unrefined metal, but China had been stockpiling ore for some time and when the crunch came simply switched to the Philippines for ore supply. Since then, refined imports have been substantial but Citi Corp. is quoted as saying “We believe a significant proportion of the 258,125 metric tons of refined nickel imported into China over the first 11 months of last year was used for collateral financing rather than real demand,” The Shanghai Futures Exchange’s rising stock levels support this, underlining the lack of end users, which an be easily read as stainless steel production demand.

Source: WSJ

Source: WSJ

China’s NPI producers have responded to both low nickel prices and soft demand from the domestic stainless steel market as imports of nickel ore contracted by 26.3% in 2015 and are down by around 9.6% year-over-year in 2016 so far. Read more

Our Stainless MMI remained steady at 51 points. However, we currently see some factors that could lift prices in the short term.

Stainless Anti-dumping Case

On March 4, the U.S. Commerce Department launched an anti-dumping and countervailing duty investigation into Chinese imports of stainless steel sheet and strip, for possible illegal subsidies and selling prices at below cost to illegally gain market share. A preliminary determination of injury to U.S producers is scheduled by March 28.

Stainless_Chart_March-2016_FNL

China’s Ministry of Commerce didn’t respond well to the this new case, arguing that simply restoring prices via protectionist means is not the solution. Chinese steel firms have already been impacted by trade cases. Recently the Commerce Department had imposed 266% preliminary duties on imports of cold-rolled steel from China, punishing Chinese steel makers for dumping or selling below cost. In December, China received a dumping margin of 266% on corrosion-resistant steel products.

Compare Prices With The February 2016 MMI Report

These tariffs have helped U.S. imports come down this year. That led to lower inventory levels here and have given U.S. mills the ability to rise prices. Steel prices climbed over the past few weeks, and stainless prices could follow. With the threat of anti-dumping lawsuits looming, the volume of imported stainless sheet and strip had already been diminishing, which should be seen in the upcoming months. The lack of imports has already pushed out domestic lead times and could create a supply shortage once service center restocking starts. However, it’s still questionable whether prices will hold just on import tariffs alone. Low international prices will add downside pressure if stainless domestic prices rise, especially since China is the only named party.

Nickel Prices Could Rise Short Term

Nickel is the worst performer among base metals this year. However, we are seeing some price strength in the industrial metal complex that could push nickel prices higher in the short term, especially if the US dollar continues to weaken.

Indonesia’s energy minister said in February that the country could ease the ban on nickel ore exports. Indonesia was China’s top nickel ore supply country prior to the ban, which enabled the Philippines to catch up.

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Back in 2014 when the ban was implemented, nickel was trading above $15,000 per metric ton. However, Indonesian companies didn’t expected that nickel would be trading today at half that price.

Indonesia Might Ease Export Ban

Because of falling nickel prices, many of the smelters that miners intended to develop have not materialized. Now, the government is going to review its export ban policy as miners struggle and Indonesia´s smelting capacity will not be sufficient by next year amid miners’ unwillingness to develop those costly smelting operations.

The removal of the export ban would add more nickel supply to international markets, possibly driving prices down while demand is weak, especially in the energy sector.

What This Means For Metal Buyers

Stainless prices could experience a short-term bounce on new import tariffs and overall strength across the base metal complex. However, prices will likely struggle to rise longer term while demand remains weak and producers don’t cut production in a big way.

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The Commerce Department placed tariffs on imports of Indian welded stainless pressure pipe and the Aluminum Association is sharpening its statements about imports of Chinese aluminum.

Anti-Dumping Duties for Indian Welded Stainless Pipe

The Commerce Department continued its recent trend of finding initial anti-dumping claims valid and has placed preliminary tariffs on Indian producers of welded stainless pressure pipe.

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Commerce calculated a preliminary subsidy rate of 2.96% and 6.21% for mandatory respondents Steamline Industries Limited and Sunrise Stainless Private Limited, Sun Mark Stainless Pvt. Ltd., and Shah Foils Ltd., respectively. All other producers/exporters in India have been assigned a preliminary subsidy rate of 4.55%.

As a result of the preliminary affirmative determination, Commerce will instruct U.S. Customs and Border Protection to require cash deposits based on these preliminary rates. The petitioners for the investigation are Bristol Metals, LLC; Felker Brothers Corporation; Outokumpu Stainless Pipe, Inc.; and Marcegaglia USA Inc.

Aluminum Association Speaks

The U.S. aluminum industry has stepped up efforts to work through multiple channels to address China’s production overcapacity and resulting glut in the global market, Politico reported. The “China Trade Task Force,” a cooperative effort between smelter Century Aluminum and the United Steelworkers union, have been working to slow imports of cheap Chinese product for some time, but now the industry trade group the Aluminum Association is speaking out more forcefully.

The association said in October that it would work with its Chinese counterparts to curtail overproduction there, but now the group is talking more stridently about the imports and Chinese authorities’ inaction to this point

China is “not slowing down their run-up in capacity,” Charles Johnson, the association’s vice president for policy, told Pro Trade in an interview. “We believe we have to get to the underlying issue.” The group is working toward the overall goal having the U.S. negotiate an agreement with Beijing to cut back production for which there is no demand.”

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Politico reported that the industry association also persuaded Customs and Border Protection to reverse tariff reclassifications that Chinese producers use to conceal exports of minimally processed primary aluminum in order to avoid a 15% tariff and capture a Chinese value-added tax rebate.

If nickel’s outlook already wasn’t good, now it could get worse as Indonesia’s energy minister said recently that the country could ease its ban on nickel ore exports.

Three-month nickel LME price.

Three-month nickel LME price. Source: MetalMiner analysis of Fastmarkets data.

In January of 2014, Indonesia implemented an export ban on nickel ore. The idea behind it was to encourage firms to build smelters to create jobs and shift exports from raw materials to higher-value finished metals. But instead, Indonesia has simply lost billions of dollars as the Philippines has picked up the raw ore slack for, mainly, Chinese producers.

Back in 2014 when the ban was implemented, nickel was trading above $15,000 per metric ton. However, Indonesian companies didn’t expected that nickel would be trading today at half that price. Because of falling nickel prices, many of the smelters that miners intended to develop have not materialized. Now, the government is going to review its export ban policy as miners struggle and Indonesia´s smelting capacity will not be sufficient by next year amid miners’ unwillingness to develop those costly smelting operations.

Free Download: The February 2016 MMI Report

In theory, more nickel ore flowing out of Indonesia will only continue to drive prices lower. Nickel recently fell to a near 13-year low although prices made some progress last week, rising with the rest of the metal complex. If Indonesia actually eases its export ban, nickel won’t likely be the first industrial metal to turn up…

As we reported yesterday, the The United Steelworkers union has reached a tentative four-year agreement with Allegheny Technologies, Inc., after 2,200 workers were locked out more than six months ago.

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ATI confirmed the agreement but said little else in a statement that read, “Allegheny Technologies Incorporated confirmed today that it has reached a tentative agreement with the bargaining committee of the USW on a new contract covering over 2,000 employees at the company’s Flat Rolled Products business and other locations.”

Not Yet Approved

The specialty steelmaker also noted that voting on and ratification of the agreement could take two or more weeks. The lockout involved workers at 12 plants in 6 states. The agreement involve the union dropping a complaint before by the National Labor Relations Board, a USW spokesman told the Pittsburgh Post-Gazette.

The USW, however, was already claiming a “victory” for the locked out workers.

“This is a tremendous victory for a very brave group of workers. They should be proud of this agreement, and of the resolve they demonstrated throughout this six-month ordeal,” said USW International President Leo W. Gerard in a statement. “They showed us all the strength that we can have when we stand together in unflinching solidarity.”

ATI would like to get back to selling shipping stainless steel. Source Adobe Stock/Jovanning.

ATI would like to get back to selling shipping stainless steel. Source Adobe Stock/Jovanning.

Very little is known yet about the actual agreement other than its length (four years). USW VP Tom Conway, who was the union’s top negotiator, said, “It’s a good agreement. I am confident they will ratify, and I think our folks are anxious to put their lives back together again.”

Idled Operations

What will happen to operations that were idled during the lockout is also anyone’s guess. 270 Union workers at ATI’s Midland, Pa., plant — which the company had continued to operate with management and temporary employees before idling it last month — stand to lose their jobs if the plant stays on the commodity stainless sidelines.

The company has said the facility could remain idled for months until it can turn an acceptable profit as commodity stainless prices have fallen below ATI’s profitability threshold. ATI similarly announced plans to idle its Gilpin Township, Pa., GOES production facility in April, which had employed a similar number of union workers before it was staffed with replacements during the lockout. If ATI stays out of the GOES business then AK Steel will be the sole US producer of the important products used for electrical transmission.

ATI’s “last, best and final offer to the USW,”before the lockout, included, ”$4,500 in lump-sum payments over the four-year agreement and continued incentive programs for ATI Flat Rolled Products employees, who averaged $94,000 in earnings in 2014.”

The proposal also included what ATI characterized as “affordable solutions for continued family healthcare, at about half the cost that the average American worker pays.”

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The USW, at the time, did not agreed with ATI’s average earnings calculation and did not support giving new hires different benefits than employees who are grandfathered in under previous agreements, another sticking point between the union and the steelmaker.