Nickel To Remain Flat, While Oil and Gas Markets Will Drive Stainless Steel Demand

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While we were discussing our coverage of nickel and stainless steel in a highly formal editorial meeting (read: intra-office banter), we happened upon the conference bill for the Institute of Scrap Recycling Industries (ISRI)’s 2011 Commodities Roundtable Forum right here in Chicago. Turns out, ISRI was hosting a forum on the state of nickel and stainless the following morning. Here are some highlights from the conversation.

First off, the most impactful, far-reaching set of questions seemed to be: what is the health of the US stainless industry today? Is the stainless business still a good one to be in?

Of course, reactions were mixed. The overarching sentiment on both fronts seemed positive. As we all know, the US business cannot be thought of in solely domestic terms anymore, but as a cog in the global stainless steel market.

“Good growth potential in the next five years globally, which is the key it’s a global market, said Bruce Jasiewicz, national manager of sales and marketing of specialty steel/nickel alloys for O’Neal Steel. Jasiewicz said that when assessing the health of the industry, he looks at both the commodity grades (your typical stainless grades used for consumer kitchens, etc.) and specialty grades (petrochemical, aerospace, nuclear, etc.). The higher-grade specialty sector is looking “very strong, he said, while the construction and home sectors are relatively strong, as the nature of demand is so cyclical. “In the oil industry, in offshore drilling, they need more and more materials, so it’s very strong, he stressed. In the Marcellus Shale, shale oil exploration in particular is already driving the demand for these materials.

Jasiewicz projects “5 to 10 percent growth on the stainless side for the next decade, he said.

Of course, much of any growth equation has to do with the Asian markets, especially China. Barry Hunter of New Jersey-based Hunter Alloys maintained that everything changed starting in 2005, when the stainless market in China really took off. China’s primary source of these ores is Indonesia, he said, but starting in 2012, Indonesia will reduce exports to use nickel primarily in its domestic market; the Chinese will just end up moving in local operations to keep using nickel and pig iron there.

The Chinese use of nickel and pig iron has given them a competitive advantage globally, said Mark Parr, a managing director and metals analyst at KeyBanc Capital Markets. As far as the nickel market goes, while iron and zinc are almost double where we were in 2008, nickel is the one that’s lagged.

China’s 2010 nickel/pig iron production was up 75 percent, according to Parr. Given the situation that we have with plenty of scrap flows and relatively weak demand in developed economies, Parr noted that supply has caught up with demand, and he’s looking for nickel to hold pat. “It wouldn’t surprise me if nickel dropped below $20,000 soon, and stayed there for a while, he said.

–Taras Berezowsky

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