Raising the floor

The reliance of Chinese stainless steel producers on nickel pig iron as feedstock has kept global stainless scrap prices in check; but, according to one industry analyst, this floor on prices may soon start rising.

Delegates attending the Stainless Steel & Special Alloys Committee meeting at the May 2015 Bureau of International Recycling (BIR) World Recycling Convention in Dubai, United Arab Emirates, heard a stainless steel market summary and forecast from Markus Moll of Austria-based Steel & Metals Market Research (SMR).

Although Moll pulled no punches about the recent state of the stainless steel scrap market, he did offer some hope that prices may yet rise again, perhaps even later in 2015.

Market reports from committee members from throughout the world also described recent and current scrap generation and trading conditions in Europe, North America and Asia.
 

A litany of challenges

At the opening of the meeting, BIR Stainless Steel & Special Alloys Committee Chairman Joost Van Kleef of KMR Stainless, based in the Netherlands, mentioned several challenges facing stainless steel scrap processors and traders.

Crude stainless steel output globally in the first quarter of 2015 was down 7% from the first quarter of 2014, reducing scrap demand, he commented.

“Declining nickel prices and a deteriorating economic outlook for several core markets have been supporting this trend,” Van Kleef writes in the “World Mirror.”

The first quarter also yielded a reduction in scrap flows, says Van Kleef. “Stainless steel scrap availability suffered as a result of the low nickel price levels, while declining, ferrous, chrome and, in particular, molybdenum prices shocked the recycling industry,” Van Kleef writes, adding that the quarter ended better than it started.

Sandro Guiliani of Italy’s Guiliani Metalli saw more signs of positive momentum in the second quarter of 2015. “The second quarter has been marked by quite a good increase in stainless steel production and, therefore, in demand for scrap from Italian steelworks,” Guiliani writes in the “World Mirror.”

In North America, committee board member and fellow “World Mirror” contributor Barry Hunter of U.S.-based Hunter Alloys LLC was having difficulty finding the bright spots in the market as of early May. “With continued low iron values and discounts applied to ferro-chrome, any current reasoning for an upward price movement for stainless steel scrap within the United States is difficult to envision,” writes Hunter.

Hong Kong-based committee member and “World Mirror” contributor Mark Sellier of One Steel Recycling Asia says stainless steel producers in Asia are seeking more scrap just as it has become more difficult to find.

“Producers generally seem to be attempting to increase their scrap ratios,” writes Sellier, but “lower nickel prices have led to a lower availability of scrap around the region, and merchants are fighting over dwindling tonnages with fast-disappearing margins.”

In the midst of a global stainless scrap market that has suffered from a weak economy in Europe and melt shops in China (the world’s leading stainless steel producer) that prefer nickel pig iron, it was up to Moll to provide a longer-term perspective during the committee meeting.
 

Following China's lead

Although scrap processors and traders may be coping with stagnant stainless prices, Moll declared, “No other metal matches stainless steel for long-term sustained growth.”

Confirming one of the challenges facing the stainless scrap sector, Moll noted that production in China now represents half of the world’s stainless steel output, with those producers using “a business model based on nickel pig iron” rather than stainless steel scrap.

The large quantity of nickel pig iron produced in China has set a floor on stainless steel scrap prices globally, said Moll, but that floor is set to rise. Moll said electricity prices in China are rising (thus increasing the cost to smelt nickel pig iron) and the Chinese RMB is gaining value.

These factors are slowly “raising that floor” on scrap pricing, Moll said. If the current floor is considered to be tied to nickel trading in the $13,000-per-tonne range, “A year from now we will be higher,” he offered.

Moll said SMR foresees only spot buying from Chinese mills of imported stainless steel scrap in 2015, with volumes held in check unless or until China lowers its 17% value-added tax on stainless scrap. He said Chinese stainless producers are currently melting about 22% scrap as charge but, like all mills, want to increase this ratio.

Moll said he and his SMR colleagues visit as many as 50 stainless production facilities in China each year, and melt shops there have no aversion to using scrap. “China is consuming 100% of its domestic stainless steel scrap,” he said.

As in most metals sectors, output and scrap consumption of China’s producers will be a key in 2015 and beyond.

China’s Tsingshan Holding Group has emerged as the world’s largest stainless steel producer as of 2014. The firm consists of 10 subsidiary companies, including Henan Tsingshan Jinhui Stainless Steel Co. Ltd., Henan Qingpu Alloy Material Co. Ltd., Qingyuan Tsingshan Stainless Steel Co. Ltd. and Songyang Tsingshan Stainless Steel Co. Ltd. The subsidiaries combined to produce nearly 4.2 million tonnes of stainless steel in 2014, according to an SMR analysis.

The second and fifth largest stainless steel producers in the world also are based in China in the form of Taiyuan Iron & Steel Co. Ltd. (TISCO) and Baosteel Group, respectively.

Data gathered by SMR also show that China has added some 15 million tonnes of annual production in the new millennium, far surpassing any other nation. While South Korea, Germany and the U.S. also have added capacity, several nations, including France, Spain and Japan, have less production capacity in 2014 compared with 2000.

“If you’re looking for where the major players are as of 2015, it’s in Asia,” Moll told his BIR audience.
 

Demand shining through

Global demand for finished stainless steel remains strong, Moll said, though demand in the petrochemical sector is slumping, with capital investments down some 30%. However, he said, the oil industry comprises only about 4% of overall stainless steel demand.

Growth sectors include newly designed truck exhaust systems, appliances, cookware and ocean water desalination plants.

Consumer goods, including cookware, appliances and bakery equipment, gobble up 47% of the stainless steel produced globally, according to SMR, making it by far the largest end market.

Moll also pointed to stainless steel swimming pools as a recent status symbol in Europe. Demand for the pools, he noted, has helped contribute to the 15% of stainless steel consumption that goes toward construction and infrastructure applications.

The energy and petrochemical sector comprises 17% of global consumption of stainless steel. However, the tapering off of oil exploration may keep this sector of the market from growing.

Moll described the automotive and transportation sector, responsible for 10% of global stainless steel demand, as “very strong at the moment,” with the aforementioned exhaust systems as well as fuel lines and sensors contributing to stainless demand.

In the heavy industrial sector, responsible for 8% of global consumption, in addition to desalination plants being commissioned, new investments in the pulp, paper and packaging sector also are consuming stainless steel.

Global demand is suitably strong that SMR is forecasting a compound annual growth rate (CAGR) in the production of austenitic (300 series) stainless steels of 4% between 2014 and 2020 and a CAGR of 6% for ferritic (400 series) stainless steels in the same time frame.

Increased demand also will help mill capacity rates globally, the company predicts. SMR says it foresees the capacity rate rising from approximately 67% in 2014 to 75% or 76% in 2020. Regarding the global mill capacity rate for the rest of the decade, Moll told BIR attendees, “It will grow every year.”

An increased capacity rate also should be good for stainless steel pricing, he said. “It is an indicator that the price situation has bottomed out,” Moll said of the increase in capacity rates in 2015 relative to 2014 and 2013. “The worst is behind us.”

Equally encouraging for scrap processors and traders, Moll told attendees of the BIR Stainless Steel & Special Alloys Committee meeting that scrap’s piece of the feedstock pie is rising at stainless mills around the world as additional scrap becomes available in the rapidly developing nations of Asia.

Scrap sellers may not always like the price mills offer, he said, but they can take long-term comfort in the trends of increased stainless steel production and consumption; the likelihood of more scrap hitting the market in the years ahead; and steady demand for scrap at melt shops that means there always is a ready market.

“Scrap will always be wanted,” Moll said. “At the end of the year it is sold out.”

The author is editor of Recycling Today Global Edition and can be contacted at btaylor@gie.net.