High Ceiling

Martin Abbott, a former metals trader who is now publisher of American Metal Market, New York, recalls predicting 10 years ago that nickel prices would continue to rise, reaching new heights as demand soared past supply.

But, as he told to attendees of the Institute of Scrap Recycling Industries Inc. (ISRI) Nickel-Stainless Roundtable in September, that optimism was predicated on events that did not occur—such as the disappearance of Russia’s Norilsk from the market. Rather than collapsing, Abbot noted, Norilsk survived and now engages "in complex financial transactions" with a strong presence in the global nickel market.

At this year’s event, sponsored by the Pittsburgh Chapter of ISRI and taking place in Pittsburgh, Abbott was preceded by speakers who exhibited varying degrees of optimism for stainless steel demand and nickel pricing. "I am not as bullish as our other speakers. I have some . . . reservations," Abbott declared.

END USERS. At the heart of Abbott’s worries was a concern that traders are "confusing stainless production with stainless consumption." Just because mills are pumping out stainless steel, that does not guarantee the end markets for it, he noted.

Much of the demand being exhibited, he noted, is in China, where there is cause for concern that central government planners are beginning to pull in the reins of what they see as "overheated" sectors of the economy.

Closer to home, Abbott notes that actual consumption of stainless steel in North America remains relatively weak, with a 12 percent drop exhibited year-to-date.

Abbott was willing to note, though, that his bullish predictions of 10 years ago were mistaken, so this time around, "Maybe I’ll be wrong again, and you may wish to invite me back if only as a counter-forecaster."

Other speakers at the event saw signs of economic turnaround that are beginning to deplete stainless steel and nickel inventories as well as causing vigorous competition for raw materials, including stainless steel scrap.

Clarence McAninch, CEO of Universal Stainless & Alloy Products Inc., Bridgeville, Pa., says the company’s sales to steel service centers are up over last year, and points to stainless steel rebar as one of several markets for the metal "that is forecast to grow." McAninch also sees growth opportunities in the power generation segment and in military aviation.

McAninch added that "there has been a definite uptick" in the economy, but that the decline in the leisure aircraft industry and the struggle to compete against low-price imports continues.

Larry Snyder of Metal Management Inc., Chicago, predicted that stainless scrap supplies would remain tight in 2004, with a domestic economic upturn continuing. He also predicted that more 18/8 scrap blends would be shipped as stainless steelmakers attempt to reduce their raw materials costs and compete for material sought by China.

China’s affect on the market has already induced Metal Management to close down a California wire chopping facility, and a recent trip by Snyder to China convinced him that mills and smelters being built there can compete on a technological basis with Western capacity. "I would suggest everyone learn Chinese," Snyder told attendees.

SCRAP CHASE. Larry Pryor who works for London-based metals trading and supply company Sudamin Corp. in Sewickley, Pa., gave his views on the nickel and ferrochrome situations.

Noting that "U.S. companies are poised to increase their capital spending," Pryor remarked, "We feel our industry is poised for significant improvement next year."

On the ferrochrome side, demand began to exceed supply in 2002, he remarked. Regarding stainless steel, Pryor said the finished product’s demand and supply should be in balance in the near term, but that tightness in stainless steel scrap supplies should continue.

Pryor says stainless scrap supply tightness—while ideally causing mills to bid up available scrap—could also cause mills to reduce their scrap charge from the current 35 percent to a level as low as 30 percent. As Jim Lawrence of ELG Metals Inc., McKeesport, Pa., remarked at the Roundtable, "Scrap supply is tight, and how we reply to worldwide demand has an effect [on our industry] tomorrow."

As noted by Snyder, much of the current demand is coming from overseas. China’s growing presence in the market has also been noticed by McAninch at Universal Stainless.

Statistics back up the observations of the speakers. Although overall stainless scrap exports for the most recently calculated month, August, receded, the commodity is still being exported at a 30 percent higher clip in 2003 compared to last year, according to U.S. Department of Commerce figures. China ranks fourth as a recipient, closely following Finland, Taiwan and South Korea. These countries each imported between 55,000 and 64,000 short tons of stainless scrap in the first eight months of 2003.

McAninch says not only is Universal competing for the same raw material, but the company also has to compete with the finished product coming back across the ocean.

Chinese steelmakers are "buying a hell of a lot of scrap," he noted. "When they take that boatload of materials [and] then sell it as bar back here below my cost, I have a problem."

WHAT’S TO COME. Unlike Abbot, several other economists making predictions for the nickel and stainless markets see better times ahead in 2004.

The International Stainless Steel Forum (ISSF), Brussels, is foreseeing a 5.8 percent growth rate in stainless steel production in 2003, according to a news release put out by the group in early October.

The trade association is forecasting 6.5 percent growth in 2004 production, or a total of 22.9 million metric tons of production in 2004 versus the 20.3 million metric tons produced in 2002.

In particular the association of stainless steel mills and re-rollers sees "a sharp recovery in demand for stainless steel, especially in the capital goods sector." The ISSF release accompanying its forecast also notes, "Demand will also increase as stockholders and fabricators re-stock their supplies at the beginning of the new year."

Should these forecasts prove accurate, that should create a supply deficit situation, which is predicted by different forecasters to fall in the 30,000- to 60,000-ton range next year. As AMM’s Abbot notes, however, all of this is predicated on the economy actually recovering to the point where capital goods are being purchased at a more steadily by households and businesses.

Per-pound pricing for nickel scrap and per-ton pricing for stainless scrap will almost certainly increase in 2004, should the optimistic forecasts have merit.

The author is editor of Recycling Today and can be contacted via e-mail at btaylor@RecyclingToday.com.