Allegheny Technologies Inc. (ATI) recently announced that its Midland, Pa., stainless steel production facility is being idled in January, citing low-priced Chinese imports, depressed base prices and low alloy surcharges, especially nickel.
In the last few months, Chinese imports of cold-rolled stainless have leveled off around 6,600 metric tons per month, as base prices of domestic stainless are now lower than what the Chinese importers are offering.
The overwhelming market sentiment about the idling of Midland is that there will be little impact on the overall supply of flat-rolled stainless. The temporary Midland closure means that no 60-inch-wide stainless will be melted or, for that matter, cold-rolled.
Still Plenty of Supply
ATI’s Brackenridge, Pa., location, which houses the hot-rolled processing facility, will be able to melt its 48-inch-wide products and finishing can be done elsewhere. Will this impact the supply of 60-inch-wide stainless? Most sources say that Outokumpu Coil Americas and North American Stainless can pick up the slack as market demand is flat.
What remains to be seen is, with importers being cautious about the threat of anti-dumping lawsuits, will flat-rolled stainless supply be constrained in 2016? The answer to that question should become clear by the middle of January.
The bigger story is that stainless base prices are too low for producers and that action has been taken. China’s Taiyuan Iron & Steel (Group) Company (TISCO) led a series of producer base price increases last week by announcing a 3 discount point decrease, an effective increase of over $.05 per lb. on 304 base gauge cold-rolled stainless.
ATI then followed with a 4 discount point decrease, an increase of over $0.07/lb. on base gauge 304. Outokumpu Coil Americas and AK Steel followed ATI in announcing similar increases. The one holdout is North American Stainless, the reluctant industry leader and also the lowest-cost producer.
NAS will set the stage for how much of the price increase holds up. As I wrote previously, the current base price of 304 stainless flat-rolled is unsustainable for the mills. An increase is needed, but is an increase of $0.07/lb. feasible?
Prices Are Still Low
If you look at this way, the net impact of the January price increases would actually still have buyers purchasing 304 stainless below November 2015 prices. With 304 alloy surcharges at a low, even the impact of the 4 discount point decrease would make the net price of 304 stainless still cheaper than it was last month, as the change in the 304 alloy surcharge from November 2015 to January 2016 will be close to a $0.08/lb reduction so the base price increase will not increase the overall cost of 304 stainless to buyers.
I think an increase in the base price is necessary especially with the decline in 304 alloy surcharges. The last time 304 prices were this low was 2003. If industry veterans recall, in early 2004, Atlas Stainless went bankrupt and ATI bought the assets of J&L Specialty Steel, causing significant shortages in supply in North America.
ATI’s idling of Midland shows that producers will take capacity out of the market if pricing is unattractive enough. If stainless demand were stronger, the effect of 10,000 tons of production a month from Midland would be felt. In this market, the effect is not as great. Fortunately, ATI has a diversified product offering so it can choose to focus its efforts on higher-margin products.