In November 2017, the JV sought to produce and market 60” wide sheet in the North American market, a width ATI can no longer melt and cast due to the idling of its Midland, Pennsylvania, melt shop. Chinese company Tsingshan, the largest stainless steel producer in the world, has supplied the slab since Q4 2017 from its vertically integrated mining, refining and casting assets in Indonesia.
ATI has been converting slab using its state-of- the-art Hot Rolling and Processing Facility (HRPF) in Brackenridge, Pennsylvania, and the JV’s Direct Rolled Anneal and Pickle (DRAP) facility in Midland.
Although ATI has long supported anti-dumping and countervailing lawsuits in the United States to combat unfairly traded imports, the JV presents a unique situation.
Although the final hot and cold rolled stainless steel is produced in western Pennsylvania, the slab is currently subject to the 25% Section 232 tariff because it is of Indonesian origin. To claim an exemption from the tariff, ATI must prove that there are no viable alternatives available in the United States.
In last week’s earnings call, Outokumpu’s CEO Roeland Baan stated that they could supply slab from its Calvert, Alabama, facility, and, thus, ATI should not receive an exemption. Others have proposed that ATI could restart its 60” wide melt shop in Midland, Pennsylvania, idled three years ago.
Price stories continue to dominate our look back at the most-read posts of 2016. Katie Benchina Olsen’s missive on why North American Stainless should hike prices was first published in late January. Stainless prices have taken off with the rest of the industrial metals since but this look back shows just how precarious the situation was for producers, who were afraid of scaring off customers with higher prices, back then. — Jeff Yoders, editor
North American Stainless (NAS), the US flat-rolled stainless market leader and the lowest cost producer, has a decision to make.
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.
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.
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.
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.
As we continue to republish our highest-rated posts of the year during the holidays, we look back at the February announcement that Allegheny Technologies, Inc., exited the commodity stainless steel business.
Knowing what we now know, and considering that stainless prices have recovered and entered a bull market, you do have to wonder if ATI made the right call. Our Katie Benchina Olsen will continue to cover the latest developments for both ATI and the stainless market in the new year. — Jeff Yoders, editor
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.
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
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.”
Titanium sponge is a key raw material to produce ATI’s titanium products. While global titanium-sponge production has increased significantly in the last couple of years, the global industrial-grade titanium market has continued to be weak. As a result of these two factors, ATI is now able to purchase titanium-sponge in the global market at prices below Rowley’s cost of production.
Titanium sponge is now available at lower costs on the open market than for ATI to produce it themselves. Titanium cluster image courtesy of AdobeStock/Tomatito26.
ATI stated that it is able to procure from qualified global producers even aerospace-quality sponge under long-term agreements. ATI has entered into competitive long-term agreements with qualified producers for both standard and premium titanium sponge. The Rowley facility will be idled by the end of 2016 in a manner that allows the facility to be restarted in the future if a reopening is supported by market conditions.
In addition to the idling of Rowley, higher cost titanium hot-working operations in Albany, Ore., will be consolidated into other operations. Read more
Rich Harshman, Chairman, President and Chief Executive Officer, of Allegheny Technologies, Inc. (ATI) emphasized in the company’s Q2 2016 earnings call last week that sales to the aerospace and defense market continue to drive ATI’s results, representing over 50% of total 2016 sales.
Harshman said, “Our aerospace market is being driven, in large part, by the growth of ATI’s next-generation mill products, forgings and castings.”
Defense, in both the aerospace engine and airframe segments, are helping ATI’s bottom line. Source: Department of Defense.
ATI’s business strategy is heavily focused on products which are proprietary to ATI or have high barriers to entry. Based on long-term agreements, its technological prowess and its ability to meet build rate schedules, ATI seems well-positioned to capitalize on the increased build rates in commercial aerospace.
ATI has a foothold in legacy programs for both airframes and jet engines but has also been part of the research and development for the next generation of both. ATI has been awarded 300 new parts contracts which will represent over $1 billion n new business from 2016-2020. The long-term agreements (LTAs) will lead to significant growth in ATI’s components business in precision forgings and castings as well as in powder metal alloys, which are usually used for additive manufacturing or 3D printing. Read more
Base prices have increased three times since the beginning of 2016. Stainless buyers have already been paying a steady increase in base prices in the transactional market. By now, most contract stainless buyers are at base prices higher than their prior contract period. Master distributors are extracting premiums as metal buyers scramble to fill in any gaps in their supply chains. Another base price increase is expected to be announced after the September anti-dumping duty determination on Chinese cold-rolled, flat stainless steel.
US Mills Enjoying Price Increases
The U.S. mills have the momentum to capture another base price increase. Domestic mills have strong order backlogs. Domestic lead times continue to be longer than the normal six to eight weeks. The impact of the anti-dumping and countervailing duty lawsuits against Chinese cold-rolled stainless has finally occurred.
The latest U.S. Census statistics showed cold-rolled stainless imports into the U.S. from China dropped to under 2,000 metric tons in May, compared to almost 10,000 mt in April. Other Asian importing countries have not significantly increased activity into the U.S. Increased imports into the U.S. from Europe have amounted to less than a 1,500 mt-per-month increase.
The threat of trade cases has made many importers cautious about the U.S. market. Whether domestic or import, the metal buyer should expect to be paying higher overall prices in the upcoming months. Since publishing our July monthly outlook, nickel prices have climbed 12%.
Cover Your Volumes
Even though prices are on the uptick, stainless buyers need to ensure that their volumes are covered. Any manufacturer with spikes in stainless demand may have difficulty in procuring additional material quickly, especially in bright-annealed, polished and thicknesses less than .030 inches.
I strongly urge metal buyers to review stainless flat-rolled requirements to ensure that adequate volumes are secured with your suppliers. Whether import or domestic sources need to be utilized, your suppliers need more transparency than ever before in your flat-rolled stainless steel needs.
Similar to copper, nickel is not metal investors’ favorite child right now. While oversupply is still and issue, only a weaker dollar and further Chinese stimulus could lift prices. However, that wasn’t the case during the month of May, driving prices down. Our Stainless MMI was no exception, falling 4%.
For the past six months, every time three-month London Metal Exchange primary nickel approached $9,500 per metric ton, prices fell short. It happened in March and again in May.
Recently, Russia’s Norilsk Nickel, the world’s largest nickel miner, said that in order for a sustained recovery to happen, more cuts will have to materialize. That’s a very unusual statement for a metal producer as they tend to talk up the market. According to the company, over 20% of the global nickel supply needs to be cut if we want to see a sustained recovery in prices.
If Norilsk has it right, it will take some time until we see a significant recovery in prices since, so far this year, there hasn’t been any supply cut announcements. The latest significant production cut was announced late in 2015. Despite its non-optimistic outlook, the company is moving ahead with the development of new projects. Norilsk Nickel is still profitable, aided and abetted by co-mined minerals and the depreciation of the Russian Ruble.
U.S. Prices Buck Global Trend
Not only Norilsk but producers that are loss-making at current prices seem redundant to shut down capacity. Glencore and fellow Australian miner BHP Billiton have recently said no more than they “may” close capacity at Murrin Murrin and Nickel West, respectively.
Here in the U.S., however, anti-dumping actions are having an effect and stainless, cold-rolled prices have been steadily rising this year. The three base price increases for 2016 have been firmly implemented on spot business. Although contractual business may have been protected from immediate base price increases, the next contract periods will definitely reflect the higher base prices.
U.S. mills have been trying all year to recoup unrealistically low base prices from 2015. The anti-dumping and countervailing duty actions filed by U.S. stainless mills against China have solidified the base price increases as well as disrupted the supply of several niche products.
All 200, 300 and 400 series alloys have been impacted by the 2016 base price increases. The three stainless base price increases for 2016 have cumulatively impacted 304 stainless base prices by at least $0.10 per pound on base gauge and almost $0.13 on 22 gauge. 430 stainless has risen by close to $0.08 per pound. 409 has risen by $0.06 per pound. Several sources speculate that there could be another round of increases on the horizon because U.S. cold-rolled stainless supply is tight.
U.S. Supplies Tighten
Mill lead times remain extended with North American Stainless (NAS) maintaining a controlled-order-entry mechanism. Some service centers also report that the light gauge stainless is limited and available only for customers who also place base gauge volumes.
Buyers of metal need to have well-established supply chains for all of their cold-rolled stainless products. NAS and Outokumpu Coil Americas remain the core suppliers of austenitic commodity products.
Two Producers Inherit Commodity Stainless Market
AK Steel is not focused on nickel-bearing commodity stainless grades. Allegheny Technologies’ Flat-Rolled Products segment continues to seek higher-value stainless and has limited its exposure to commodity stainless.
In theory, Allegheny and AK Steel could relieve some of the long lead times metal buyers are experiencing, but their mill capacity is focused on supplying other products or has been idled. The anti-dumping and countervailing lawsuits against China have impacted the Asian supply of cold rolled stainless. For instance, Taiwanese rerollers using Chinese hot band for bright annealed have limited new offers.
POSCO, which has South Korean and Vietnamese stainless mills, is being cautious with offers into the U.S. market. Bright annealed and light-gauge, cold-rolled stainless remain the product categories most impacted by the trade cases.
Stainless flat-rolled pricing remains poised for further base price increases. Stainless demand is expected to remain around the same volume in the U.S. The trade cases against China are proceeding in a multitude of steel products, not just stainless. Although domestic mills are capable of producing more stainless volume, the appetite for AK Steel and Allegheny does not appear to be there yet. Until then, NAS and Outokumpu will be the core commodity stainless producers. Metal buyers will need to look to alternative sources for niche products and perhaps should look to European mills such as Aperam or ThyssenKrupp AST as Asian importers are spooked by the trade cases against China.
U.S. Customs and Border Patrol has stepped up efforts to enforce U.S. trade law. Earlier this week, the Department of Commerce confirmed the cold-rolled steel anti-dumping margins from China (265.79%) and Japan (71.35%) as well as a countervailing subsidy for China of (256.44%). This makes for a total of 522% duties on Chinese cold-rolled steel.
The U.S. steel industry says we are at economic war with China. With cold-rolled steel being used in automobile panels, appliances and construction, could the anti-dumping and countervailing duties lawsuits against Chinese producers actually be hurting the United States?
The steel industry directly employs 142,000 people which is part of the 12 million U.S. manufacturing jobs according to the National Association of Manufacturers (NAM). The newly elected chairman of American Iron and Steel Institute — John Ferriola, chairman, president and CEO of Nucor Corp. — said at a recent AISI CEO press briefing that steel jobs declined by 13,000 in 2015. Although steel jobs declined last year, manufacturing jobs in other subsectors have picked up the slack. According to the Bureau of Labor Statistics, a total of 13,000 manufacturing jobs were created in 2015.
Trade is a two-way street, what if China begins to tariff the goods U.S. manufacturers sell there? Source: iStock.
Steel prices have been rising in the U.S. as domestic mills are now shielded from imports China and other countries named in the trade cases. According to numerous sources, the domestic lead times have extended which is leaving some companies scrambling for metal. Read more
The enforcement of these trade laws is the responsibility of U.S. Customs and Border Protection. In Salt Lake City earlier this month, the American Iron and Steel Institute and Metals Service Center Institute held their general meetings where steel industry executives discussed why Chinese steel imports are of particular concern to the U.S. steel industry.
CBP Chairman R. Gil Kerlikowske explained in his speech, “Protecting Our Borders, Protecting Our Industry” how CBP enforces U.S. trade law, saying that the title of his speech, “really speaks to the duality of CBP’s complex mission, which is facilitating lawful trade and travel while ensuring the safety and security of our borders and the global supply chain.”
U.S. Customs and Border Protection explained its processes for dealing with illegally dumped steel products at the AISI/MSCI general meetings earlier this month. Source: Adobe Stock/ZJK.
I began my career at Mexico’s only stainless steel mill, Mexinox (now part of the Finnish company Outokumpu), which supplied tequila distilleries with the stainless steel used for fermentation and storage tanks. Tequila is a quintessential Mexican drink and was enjoyed by many a customer visiting the Mexinox plant (off-site, of course).
Source: Katie Benchina Olsen/MetalMiner.
After a tour of the plant, it was only appropriate that we gave our customers commemorative bottles of Mexinox-branded El Gran Viejo Tequila to bring back home to the States. I thought it would be interesting to examine just how stainless is used in tequila production.
Why is stainless steel in tequila production? Of course, stainless vats are a sanitary choice; however, stainless does not impart any additional flavors into the mixture of blue agave juice and the distinctive water called the mosto.
Tequila is distilled twice in accordance with Mexican law. Because no leeching occurs in either the fermentation or distillation process when stainless is used, the resulting tequila “blanco” is clear in color and solely the result of the fermentation of the agave juice and spring water.
The addition of proprietary yeast — and classical music in some cases, finishes out the blend.
A former colleague of mine shared that Cazadores plays classical music in the fermentation room because the sound waves create a soft stirring in the tanks that aides in the fermentation process. Many people describe the resulting tequila after two distillation processes as being light with citrus or aloe vera notes. Blanco tequila is aged less than two months in stainless barrels and then bottled. The darker colored tequilas are those that have been aged in oak barrels which means the tequila takes on the flavors of the wood and the harshness of the alcohol mellows.
Anejo or Reposado?
Reposado is aged two months to under a year, and anejo is aged from one to three years. Once the aging is complete, the tequila can then be stored in stainless tanks again until it is bottled.
Stainless steel is a neutral container that allows the natural elements of the blue agave to be fully experienced. The soil and climate have an impact on the taste of the blue agave hearts.
Tequila from the lowland blue agaves is described to have an earthy flavor whereas the highland blue agaves yield sweeter and fruitier flavors. The other factor in the taste of the finished product is the water which is combined with the blue agave juice.
Just as bourbon has a unique taste because of the limestone in the Kentucky water, tequila has a special taste because the regional water is high in mineral content. Stainless steel allows all of these factors of Mother Nature to mix together to create a unique tequila without adding any of its own character. By the way, Mother Nature had a way of bringing tequila to us, supposedly, by a farmer’s wife seeing a rabbit gnawing on a fermented agave plant, according to the Suerte website. I suppose it was luck “suerte” that brought tequila to civilization.