Less Intensity

Accounts of China's metals production boom often include the nation's hand-in-hand massive appetite for raw materials such as copper scrap or iron ore.

Among the metals that China is now producing in record amounts is stainless steel. But China's producers of stainless steel have not been as dependent on imported feedstock as much as other metal producers there are, thanks to abundant domestic nickel pig iron production.

Recent investments in nickel pig iron production in China have made the feedstock available and affordable to stainless steel producers there, meaning there is less demand and less pricing pressure on stainless steel scrap compared with many other scrap metals.
 

Upward Path
The production of stainless steel has been on an upward path in 2010 and 2011, recovering from setbacks stemming from the financial crisis that saw lower production in 2008 and 2009.

Chinese steelmakers have continued to ramp up their production of stainless steel, growing from 7.34 million metric tons produced in 2008 to 12 million metric tons estimated to be produced in 2011, according to figures published in the May 2011 edition of the Brussels-based Bureau of International Recycling (BIR) World Mirror.

While production in China has experienced incremental gains each year from 2008 to 2011, the pattern has been different in the European Union and in the NAFTA (North American Free Trade Agreement) region.

In Europe, stainless steel producers made more than 7.83 million metric tons of crude stainless steel in 2008 but then dipped down to 5.97 million metric tons in 2009. Subsequently, the EU's stainless steel makers have nearly rebounded in the past two years to be back to where they were in 2008, if they produce the 7.66 million metric tons estimated for all of 2011.

The NAFTA region showed a similar pattern but with a healthier rebound:

• 2008 – 1.92 million metric tons;
• 2009 – 1.62 million metric tons;
• 2010 – 2.33 million metric tons; and
• 2011 – 2.38 million metric tons (projected figure).

The revival of stainless steel production in Europe and North America has helped sustain markets for stainless steel scrap. But, unlike in markets for so many other secondary raw materials, the boom in China's economy is not currently creating historic demand for stainless steel scrap.
 

 

An Alternative in China
At the China International Recycling Conference 2011, hosted by the China National Resources Recycling Association, attendees learned that mills in China produced as much stainless steel in 2010 as they did the two previous years; but, they did so while using considerably less imported stainless steel scrap.

In a presentation at the conference, which took place May 13-14 in Foshan, China, Li Cheng of Shanghai Zhonghe Metal Processing Corp. Ltd. provided a range of figures portraying China's stainless steel production trends, including its use of raw material feedstock.

China's stainless steel production has grown from 5.3 million tons in 2006 to 9.5 million tons in 2010. Li estimated that China's output would continue to grow, reaching 14 million tons in 2014.

China's economy has been consuming about the same amount of stainless steel each year from 2006 to 2010. This, to some extent, was creating a "reserve of stainless steel," said Li, which would be "an important source of stainless scrap."

Li characterized the demand for stainless steel scrap in China as "strong," adding, "as a recycled material, the demand for stainless steel scrap will grow in the future years and be applied as a basic material to multiple industries."

However, Li said, the high price of nickel on the London Metal Exchange (LME) has caused the price of stainless steel scrap to rise around the world, making it an expensive commodity for Chinese stainless steel producers.

While these producers were willing to import more than 380,000 tons of stainless scrap in 2007 and again in 2009, as prices rose in 2010 they backed away from imported scrap purchases, bringing in a mere 94,000 tons of the material.

The most common substitute feedstock while scrap has been sidelined has been nickel pig iron from a "red soil nickel mine" that started production in China in 2006, Li said. "Nickel pig iron contributed to half of the total metal [feedstock for stainless steel] in China in 2010," he stated.

In a report prepared for the May 2011 BIR World Mirror, South African scrap trader Mark Sellier of OneSteel Recycling also referred to China's switch to nickel pig iron. Stainless steel production in China, Sellier states, "is still heavily reliant on nickel pig iron for nickel units that are cheaper than primary and scrap." Sellier adds, "scrap ratios [in China] remain in the 20 percent to 25 percent range."
 

Other Factors
In his Chairman's Report prepared before the 2011 BIR World Recycling Congress in late May, BIR Stainless Steel & Special Alloys Chairman Michael Wright pointed to several factors that are influencing the market.

Wright, who is chief operating officer of Germany's ELG Haniel GmbH, referred to the stainless steel scrap market as having been "a rollercoaster ride" between the fall of 2010 and the spring of 2011.

In his report, Wright said many mills cut back on scrap purchasing in the fourth quarter of 2010, "mainly for balance sheet purposes."

Once the 2010 books were closed, however, buyers came back in to the market, according to Wright. "2011 saw a dramatic increase in demand from all areas, apart from China, and this lasted through the second quarter," he said.

At the BIR World Recycling Congress event, which was in Singapore in late May, guest speaker Markus Moll, managing director of Austria's Steel & Metals Market Research, noted that even with the growth in global stainless steel production in 2010 and 2011, some mills in the developed world were struggling.

Moll pointed to 65 percent operating capacity at stainless mills in Europe and a 61 percent figure in the United States, commenting, "This is a situation that really wants to change."

Moll's research indicates that stainless steel producers, after losing "tons of money" in 2009, have returned to narrow profitability.

A chart displayed by Moll showed scrap companies faring only a little better in terms of profitability, while ore producers "are 25 percent to 35 percent profitable," according to Moll. Speaking to an audience of scrap and steel industry delegates, Moll said of the ore producers, "We should strive to reach their level" of profitability.

While China turning to nickel pig iron has curtailed demand to some extent, Moll said the resulting increased scrap availability was making the material attractive to other producers around the world.

He said the long-term average "discount" for a stainless steel mill to melt scrap was 11 percent. Currently, however, mills can save 14 percent on their costs when they use scrap. "This should make scrap again very popular at melts shops all around the world," Moll stated.

That least-cost-suitable-charge advantage for scrap may be important in the second half of 2011, according to Moll. He predicted that China's economy would slow during that time and stainless steel users and scrap buyers around the world would engage in another "de-stocking" phase in the fourth quarter.

The best way for scrap demand to hold up during that time will be for the material to provide a cost advantage for raw materials buyers who will still be in the market.

The author is editorial director of Recycling Today and can be contacted at btaylor@gie.net.