Besides confirming a stainless steel and nickel market outlook recently reported by my colleague Stuart, panelists at the ISRI Commodity Round Table conference last week in Chicago covered several additional trends that we have not previously reported nor have we seen in various metals publications. One observation made by panelist Michael Wright, ELG Haniel GMBH and also President of the British Metals Recycling Association, which we have now heard twice at two separate events, involves the notion of “exchangeability of metal units. In other words, according to Wright, “consumers no longer want to buy stainless steel, they want to buy Ëœmetal units’ with specified levels of various alloying elements such as nickel, molybdenum and iron. We heard a similar comment regarding buying “iron making units, which we will return to in a follow-up post. The purchase of these Ëœmetal units’ places additional responsibility onto the supplier according to Wright, because consumers dictate the actual chemical composition of the particular stainless they intend to purchase. For example, a customer may dictate chrome at 16-17% max. Producers often find it challenging to hit the customer’s targets.
A second trend impacting stainless steel supply chains involves residual levels within the scrap supply chain. An inherent conflict exists between what scrap dealers and suppliers want to deliver to producers (smelters) and what those producers want to receive. Essentially the producers want residual levels held as low as possible (as stated by Missy Bilz of North American Stainless) whereas scrap suppliers would like to see residual levels raised. Also related to residuals, another question examined which types of stainless applications could best tolerate higher residuals. Wright pointed out that kitchenware and cutlery could withstand higher coppers (though he added that makes it a nightmare for recycling) but some industry specifications for say oil and gas would take too long to change and therefore would not be a good candidate for evaluating residual levels.
Another big point of discussion involved the addition of a new flat roll mill coming on stream later this year (ThyssenKrupp). Currently, the US has three major flat roll mills. An audience member wanted to know how the addition of ThyssenKrupp would impact the availability of scrap. The panelists agreed that a fourth mill would change all of the dynamics of buying scrap in the US. The US will need to consume that material here (vs. export it). That discussion evolved into questions about stainless steel over-capacity within the US market. Another audience member wanted to know whether M&A consolidation would take some of the over-capacity offline or would existing producers need to shut down capacity. Panelists suggested that Thyssen had already started to undercut the market, though their pricing appears less severe on the steel side (vs. the stainless side). Speaker Chris Olin of Cleveland Research Company, a firm that provides sell side research for carbon, stainless and high performance materials, said, “There is a pretty big need to rationalize supply. When asked whether or not the market could expect further consolidation in the stainless sector, panelist Michael Wright answered, “No, the greatest growth rate for stainless production will occur in China. The growth rate is there. In China, there is little opportunity to join up with a Chinese company or a scrap operation. It is proving very difficult. I don’t see any consolidations in recycling perhaps some activity around merging grades.
Panelists also shared a few statistics that we thought MetalMiner readers might find of interest:
- The number of times a ton of nickel turns on the LME for stainless production (25x)!
- Stainless has the highest recycle rate of any metal (over 80%)
- Between 2008 and 2013 As a percentage of total world stainless production, Asia’s share will grow from 55% to 68%. However, scrap generation will run well behind demand. China will generate only 25-30% of its requirement. It’s too expensive for China and that’s why they are going into nickel pig iron.