A Rising Tide

As recyclers sweated through the second half of summer, the stainless market heated up along with the weather. In July, nickel and stainless prices took a hop, and several observers say they expect stainless to continue to cook into early fall. After that, however, the market outlook—along with the outside temperatures—is expected to cool significantly.

Much of the credit for getting nickel and stainless markets cooking might go to other commodities, especially copper. Many recyclers say a rising tide lifts all boats. Nickel simply is benefitting from the overall rise in prices of many other commodities.

FLUID MARKETS

“The market is very fluid,” says Mike Rubin, a trader with St. Louis-based Alter Trading.

“The market has moved up quite a bit with the higher ferrous prices,” Rubin says. He credits the turnaround to higher domestic mill demand.

“Prices went up and the creatures came out of the closet,” he adds.

For the most part, Rubin says, international traders had little reaction to the market. “It was not export. It was all on the domestic side,” Rubin adds.

Volumes have been good, which means recyclers can move material.

“Market activity is up somewhat but not significantly,” says Don Zulanch, senior vice president at Cohen Brothers, Middletown, Ohio. Despite the price run-up, he says he has seen nothing to get excited about.

“People don’t sit on stainless,” Zulanch says. Unlike some other materials—copper being one—stainless generally flows through channels as it is generated.

“We just go with the flow. We don’t ask why the market changes, we just deal with it,” Zulanch says. However, he says he is sure of one thing: The recent run-up in nickel prices has little to do with the realities of supply and demand.

Others agree.

“There is no reason for nickel to be where it is. Everything is up for no apparent reason,” says Gerry Stewart, vice president, ELG Metals, McKeesport, Pa. “I don’t see any land-rush of Chinese buyers.”

Stewart says recyclers, once again, are at the whim of commodity traders, speculators and others who are outside the market.

“Supply and flow have gone up at these higher prices,” Stewart continues, “but the demand is unchanged. It is very light. Consumers are hesitant to stick their toes in the water.”

“I think demand has picked up a bit,” says Jim Wilkoff, S. Wilkoff and Sons, Cleveland. “The markets certainly are stronger than they were in June or July. The copper people are seeing the same thing.” While Wilkoff says he agrees that things look much better in nickel and copper, he gives credit to the euro. (See sidebar)

“Yes, the increase has a little to do with commodities, but most of it has to do with the recent rise in the euro,” he says. “All the metal markets went up roughly at the same increase as the euro.” Wilkoff says all the markets have benefitted from greater optimism tied to the financial component of the markets as opposed to basic supply and demand. “You can make the same argument with the U.S. stock market,” he says.

However, not everyone sees good flow. “Things are tight,” says Andrew Salitsky of Salitsky Alloys, Holden, Mass. The company specializes in nickel and high-temp alloys.

Salitsky says he has no reason for either the run-up in prices or for the tightness of the market. “I just react to the market,” he says.

Canadian markets are responding in similar fashion, with stainless prices moving forward. “Nobody knows why things are going up. It is not China. It is not Europe. The economy is not very bad—in fact, it is still good,” notes Michel Poulin, vice president of nonferrous trading for Triple M Metal, Brampton, Ontario.

His conclusion parallels Stewart’s: The funds are pushing nickel prices up. “When copper went up 30 cents per pound, the rest of the metals followed,” he says.

In fact, copper went from just less than $3 per pound to just more than $3.30 per pound, showing fairly steady growth throughout the last two weeks of July. Just after July 4, copper went above $3 per pound and withstood a correction into the $2.90s before its strong move late in the month.

During that same time, the 30-day LME (London Metal Exchange) nickel price went from $8.50 to $9.75.

Also, most domestic producers of primary nickel were well below capacity.

IMPORT EFFECT

Imports of finished steel products were strong early in 2010, and the anticipated decline was a bit of a change, according to figures from the Specialty Steel Industry of North America (SSINA), Washington, D.C. The association’s July 23 report, current through April 2010, shows that imports of total specialty steels (including stainless steel, alloy tool steel and electrical steel) in year to date (YTD) April 2010 were 234,102 tons, a 37.8 percent increase over the YTD April 2009 figures; U.S. consumption was nearly 699,000 tons, a 39 percent increase; and four month import penetration was 33.5 percent, a 0.3 percent decrease from 2009.

Stainless steel sheet/strip year-to-date imports numbered 108,700 tons, a 67.5 percent increase compared to YTD April 2009; U.S. consumption was 429,850 tons, a 64.2 percent increase; and four-month import penetration was 25.3 percent, a one-half of a percentage point increase from 2009.

Stainless steel plate imports likewise were way up. The SSINA’s YTD April 2010 figure was about 22,930 tons, an 85.3 percent increase compared to YTD April 2009; U.S. consumption was approximately 80,790 tons, a 55.4 percent increase; and the four-month import penetration was 28.4 percent, a 4.6 percent increase from 2009.

Bar, wire and rod all were up, with rod up greater than 100 percent on the YTD figures.

NICKEL’S LUSTER

Rubin says nickel markets have improved somewhat, but nothing to match the improvement in other areas. Copper and aluminum have been especially attractive to peddlers, who saw the price of copper zip back above $3.

The increase in copper prices was felt across the board. Many observers note that speculation drives markets; when one metal shows a burst of life, others follow. This time, titanium, Hastelloy, tungsten and carbide all followed in the wake of the improved copper prices.

“If this rally sustains, consumers may come back into the market to protect themselves,” Stewart says. He says he sees the possibility of defensive buying before the price rises to $11 or $12.

Like everyone else, he says he foresees no big buying move from India or China. While there is some domestic business, it is nothing that would drive nickel prices to current heights.

Historically, the nickel price jump is an anomaly, too. Although there have been some changes in the past couple of years, historically it is unusual for metals to strengthen into the fourth quarter. It is more typical for metals to bob along at the end of the year, showing a spurt late in December as people anticipate the New Year.

“It is very confusing,” Stewart says. Add in the uncertainty in the general business climate—health care, unemployment, taxes, interest rates—and it is little wonder that recyclers are confused.

HOW LONG WILL IT LAST?

“It’s a bubble that will pop,” Stewart says of the higher nickel prices, adding that he does not know how long they will last. “These things feed on themselves.”

For him, the bottom line is that the bubble will continue to expand as long as nickel is attractive to commodity speculators. “Then,” Stewart states, “the escalator will come down.”

“I think we will see prices stable to stronger through the end of the year,” Wilkoff says. “I’m not overly optimistic but I’m certainly not pessimistic.”

Eventually markets come back to supply and demand. Temporary dislocations can make the market more or less attractive, but basic economics will kick in.

“The fundamentals are neither more or less aggressive,” Poulin says. “I would not be surprised to see a big change in the market,” he adds. As of early August, he says he expects the market to remain healthy for several weeks but then start to correct in September—unless something unforeseen happened.

Zulanch says he sees markets continuing to be strong. “This (run-up) is not because of supply and demand,” he says. “Supply and demand are still in balance.”

Zulanch says that many of the big yards that do blending of nickel for stainless still have reasonable inventories on hand. That means no huge pent-up demand is out there.

Some mills that were weak have orders on the books. Yet again, no huge backlog exists that will require inordinate amounts of scrap or basic material to come out of the woodwork.

“If China decides to accept the Comex prices, obviously they will become more aggressive in the market,” according to Poulin. “If demand improves, then the scene changes,”

Yet most overseas commercial consumers say they see potential for much more new supply to come on the market. That would hurt the market for stainless scrap, too. For example, a number of major consumers seem to be content to join China on the sidelines. Japan has pulled back, as well.

The author is a freelance writer based in Cleveland. He can be reached at curt@curtharler.com.