Stainless Steel

The balance of power is shifting in the world of stainless steel. Before emerging markets began to heavily invest in stainless steel production Europe and Japan were the source for much of the world’s stainless supplies. As recently as 2008, Europe was still exporting 1.6 million tons of stainless steel. But the rise of emerging market production capacity has been relentless such that now Europe finds itself in a similar situation to Japan as it looses export markets and its domestic markets remain slow growing at best. Acerinox for example has reached agreement between management and its trade unions to facilitate production cuts of up to 50 percent through the whole of 2010, although just last week it said it may increase production in February to meet an uptick in orders from North Africa. Acerinox’s recent announcement that they would produce duplex grades is probably a reflection of the challenge the firm is finding competing in the commodity end of the stainless market.

The same process may now be happening to some of those emerging market sources, at least in Asia as Chinese output is crowding out its neighbors. China’s production has increased more than 22-fold in the last ten years and an article in azom quotes a  MEPS forecast that China’s stainless capacity will increase further over the next five years. This is likely to exceed any potential growth in domestic demand and lead to increased availability on the world market. Taiwanese producer, Tang Eng, has been forced to cut output in the last two months and South Korea’s Posco may restrict operations in January. Although growth in home demand should be sufficient for both countries to maintain their current capacities, in the future their export markets will be cramped by growing Chinese capacity.

India has grown rapidly over the last decade such that it is now ranked fifth in the world according to SK Roongta, chairman of Steel Authority of India Limited (SAIL). He is quoted as saying, “Going by the current growth trends  India is expected to be the second largest producer of stainless steel in 2015 after China. Chinese material has been dissuaded from entering the European market recently by pending anti dumping cases. Indian producers are calling for similar protection against low cost Chinese imports as even their production levels were hit in 2009.

Figures from the International Stainless Steel Forum (ISSF) reported in the Engineering News underlined the position. In 2007, global stainless steel output was 27.8 million tons, which decreased by 1.9 million tons in 2008 to 25.9 million tons. Excluding China, stainless steel production in Asia was five million tons in the first nine months of 2009, which was a year-on-year decline of 23%, owing to lower output in India and Japan, while production remained flat in Korea and Taiwan. Stainless production in China however was 6.6 million tons in the first nine months of 2009, an increase of 19.1% on the same period of 2008. The ISSF reported that China accounted for almost 37% of the world’s stainless production. At the end of the third quarter of 2008, China’s market share was just 26%.

–Stuart Burns

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MetalMiner would like to welcome Scott Fasse, Vice President of Marketing and Business Development for United Performance Metals, a leading supplier of specialty alloys in sheet, strip, coil and plate forms.

United Performance Metals slitter operator Jim Garitson spends his days churning out stainless steel that finds its way into products used in a variety of industries.  One market that makes heavy use of stainless steel, in addition to carbon steel, aluminum and chrome, is the performance powersports industry.   In his off hours, Jim’s passion is repairing and overhauling cars, trucks and motorcycles.   His most recent project, customizing a stock Harley Davidson Wide Glide motorcycle, provided the rare opportunity to watch work and pleasure intersect.

Harley Outdoors

Although his passion for repair and fabrication started early with simple maintenance and modifications to childhood bicycles, his work experiences including assembly, machining and slitting of specialty metals has provided Jim with the confidence to tackle larger projects.   In 2007, he completed work on a Chevrolet K1500 pickup that he sold to generate cash to purchase and customize his Harley.

Harley_Indoors

After purchasing the bike, Jim set to work customizing and replacing parts.   “It has been two years now and I can honestly say there are very few original parts left on this bike, Jim said.   The bikes exhaust, control cables, fuel and brake lines are all produced from the same slit stainless steel coils that he works with every day.   Few people have the opportunity to watch the production cycle move full circle from a raw input to a finished product, “it’s really pretty cool, Jim noted.   In addition to the satisfaction Jim gets from riding something of his own creation, he has also caught the attention of judges at local motorcycle shows where the bike has earned second and third place honors.

Jim_Harley

Scott Fasse

In a Dec 17 post entitled Outokumpu moves into India with Service Center we reported the Finnish stainless producer had dusted off plans for a full stainless service center on India’s west coast and had made a commitment to proceed with the investment. We got it wrong; picking up on some over enthusiastic domestic Indian reports that appeared well informed we reported the project was likely to proceed following the decision by the Finance Ministry not to implement a proposed import levy on stainless steel coils. In fact Outokumpu’s position had not changed. A year earlier they had decided to shelve the project with an announcement on December 11th 2008 stating the reason as a desire to maximize cash flow and maintain balance sheet flexibility. This was due to the weakened demand for stainless steel which was (accurately as it turned out) anticipated to continue.   The service center investment in India was among several projects to be postponed, although the anti-dumping investigation into stainless steel imports by the Indian government also created some uncertainty.

A review of these postponed investments will be made by the end of 2010 but for now the priority is to balance short-term cost and cash flow management within the context of Outokumpu’s longer term business plan.

Outokumpu continues to struggle with very weak markets and poor capacity utilization. Stainless demand remains depressed although third quarter sales were above second quarter. The company has postponed investments in new melting facilities in Sweden as well as the Indian service center. Such cost containment initiatives have helped reduce losses and the firm has said they hope to break even by the end of this year. A return to strong growth will depend on a return to growth in western markets where the firm’s high quality and specialty alloy range command the premiums they deserve.

–Stuart Burns

While other stainless steel mills like ArcelorMittal set up manufacturing operations in India to compete with domestic producers like Jindal and Shah Alloys the specialist Finnish stainless producer, Outokumpu has taken a different tack, at least in the short to medium term. Realizing the growing domestic market for stainless steel strips and coils is opening up opportunities at the top end for imported material the firm has been running two sales offices in India for sometime servicing bulk requirements that can accommodate the lead-time inevitably involved with imported material. Like their German competitor ThyssenKrupp Stainless, Outokumpu has been biding their time as the market has grown and matured. In the early days, price was everything in India and foreign suppliers were always going to struggle against domestic producers. But increasingly state consumers who can buy duty exempt and Indian component suppliers who sell to overseas buyers for whom quality is paramount are  willing to pay a premium to buy from abroad.

Outokumpu was going to open a domestic Indian service center a year or more back but the threat of import tariffs made them postpone the decision according to this article. The company’s intention is to install cut to length and slitting facilities for local processing to end-users requirements but supply the service center with coil from Finland, leaving them exposed to anti dumping duties on the imported coils. But in a recent ruling, the Indian Commerce Ministry in its final recommendations on anti-dumping duty on steel products excluded imports of certain grades and sizes of stainless steel items from their list. So Outokumpu is now going ahead with a 50,000 ton per year service center in Maharashtra at a cost of over US$60m. Over 50% of India’s stainless consumption is on the western seaboard. Whether the Directorate General of Anti-Dumping and Allied Duties decision to review the duty structure and exempt stainless steel products below 600mm width and above 1,250mm was in anyway influenced by Outokumpu shelving plans to establish the service center is hard to tell but the company’s move is widely seen as an affirmation of the growing maturity of the Indian stainless steel market. Domestic stock-holding ventures in emerging markets are often little more than hardware stores and only very gradually develop into modern service centers as we would recognize them in the US. Others will likely follow Outokumpu’s lead in the next couple of years. Thyssen is an obvious candidate building on  their exposure in China, Vietnam and Singapore. Considering their size, US distributors have been slow to expand stock-holding in Asia outside of China but with growth consistently over 6% since the middle of this decade, India is likely to receive a great deal more attention from foreign steel companies and distributors looking for a piece of the action.

–Stuart Burns

There was a time when if the price of a metal doubled in a year it would be the stuff of headlines. Not only trade journals, but newspapers and even TV channels would post features on the dramatic price rise and the ensuing calamity that was likely to follow ” whether it be a crash in the price or consumers being forced out of business. Nowadays we appear hardened to trebling or even quadrupling of prices in a single year such is the bull market that has prevailed this decade. So as the price of manganese has doubled  in the  last 12 months maybe we can be forgiven for not having taken too much notice. Read more

Nothing seems to rattle the tail of a manufacturing organization quite like being asked to participate in a reverse auction. But it is our contention that reverse auctions within the manufacturing sector are way down according to a comment in this article which appeared over on Spend Matters a little while ago. There are several comments in the post worth reading. But I think in context of metals raw materials, semi-finished materials and possibly further worked products containing metals, auctions are down and possibly out but not necessarily for the reasons you might suspect. Read more

With both global prices and sales of steel steaming away over the last twelve months, the sometimes overlooked stainless market has been quietly contracting. The market contracted by 2.9% in terms of production last year to 27.6 million tons according to the International Stainless Forum. But the reasons for the decline – a sharp fall in nickel prices, appears counter-intuitive to us. We expected the fall in stainless demand in the second half of 2007, due to the rise in nickel prices in the first half of the year, as manufacturers switched from stainless to other products. There is a lag in these situations and production is hit only 6-9 months after the price spike. Western Europe and Africa reported a 13.3% decrease in stainless steel production to 8.7 million tons during 2007 while the Americas reported a 15.2% decrease in production to 2.5 million tons.

Asia, on the other hand, saw stainless steel production rise 6.3% to 16 million tons in 2007. China is now the world’s largest producer. Its production rose 36% to 7.2 million tons. While at the same time, the Chinese government has actively tried to curb exports of semi finished steel products by adjusting the incentives and penalties for exports. The result has been a decrease in exports of semis and an increase in exports of stainless containing components and products. Read more

We have written a lot over the last few weeks about the macro-economic situation the world’s metal markets find themselves in so it came as pleasure to connect with an old friend of ours Dan Kendall, President of ABC Metals to hear about life at the sharp end. ABC is a distributor of high quality precision slit non ferrous metal products with distribution centers in the mid-west and Texas.

Distributor inventory levels are at all time lows. Dan had a wonderful quote from the CEO of another distributor who said, “You could shoot a gun in our warehouse and not hit any metal”. Faced with falling demand and rising prices, distributors have stopped buying. Inventory levels are dramatically lower and only niche players with long running contracts and sophisticated cost hedges in place are managing to still grow their businesses. ABC was up 27% last year. Read more

I can’t say that I am shocked by these survey results which were just released over the weekend by buying consortium Prime Advantage. According to the press release, of the 100 member companies that responded to the survey, 46% said that raw materials, “which include stainless steel, nickel, copper and other metals and plastics were a major concern in 2008.” Energy costs came second with 17.5% citing this as the biggest cost pressure.

Given the past two years, it is no surprise that raw material price pressures remain top of mind for purchasing professionals and owners of small businesses. What is ironic is that 66% of respondents “plan significant capital improvements in 2008, including equipment upgrades such as press brakes, turret punch presses, plus equipment for laser cutting, robotic welding and stamping”. On top of that, 59% of respondents expect a revenue boost in 2008.

But aren’t we in a recession? Well, maybe but not all manufacturing has been feeling the pinch. A colleague of mine who is a turnaround professional recently told me that he has seen manufacturing companies whom he thought would never export again, do more of that of late than in the last 10 years combined! Just last week Caterpillar (my favorite economic bell-weather) reported a 20% jump in exports of machinery and equipment in 2007, according to this Crain’s Chicago article. So it’s no wonder that we see companies worry about raw material pricing yet continue to make capital investments.

The state of the US dollar is undoubtedly a boon to many US manufacturers as their exports are now much more competitive. Foreign competition as my partner Stuart rightly points out, is down at the moment but what happens when, “they [US manufacturers] will once again face their normal level of foreign competition… I wonder how bullish they would be then?” Good point but if you are of the school of thought that the dollar had been “wrongly” priced previously due to certain “bubble” industry sectors and the dollar continues to trade as it has been for awhile, we’ll continue to see strong exports. Of course what goes up also goes down and vice versa.

But one thing we can bank on, it appears certain that raw material pricing will remain volatile and a concern for manufacturers.

Editor’s Note: If you are concerned about raw material volatility, take our free  MetalSaver quiz  for cost savings ideas. –Lisa Reisman

And what does the price of Ferro Nickel in India have to do with that spatula you used last night? Actually, quite a bit. India is about to cut the import duty for Ferro Nickel by 3% for 2008. According to this Economic Times article both nickel and chromium prices are also expected to fall in 2008. The result? According to the article, a 10-15% reduction in the price of stainless steel utensils! Hee Haw! So if you were holding off on that fork purchase, you might consider a spring 2008 excursion to your local cutlery store.

Cutlery

Okay, so you laughed. But there is a lesson here … the price of these ferro alloys, along with nickel and chromium in India most certainly affects U.S. buyers of all types. If your company is importing stainless steel utensils, these price drops matter to you. You want to be sure your spring contracts reflect these price changes.And despite all of the recent anti-trade sentiment, the fact remains that we are all operating in a global economy. South Africa controls about two-fifths of the world’s production of chromium, but India is also a significant producer. We’ll continue to report metals price developments from around the world. Alloying elements can and will continue to have a dramatic effect on finished item cost. In the meantime, if you are considering replacing your serving ware, hold off until spring/summer.

–Lisa Reisman

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