Specialty Metals: As Bad As It Gets

Is it darker in a cave after sundown? Is it wetter under water if you’re there when it rains?

At the start of 1998, things looked pretty bleak in the specialty metals market. A year ago, Recycling Today compared the scrap market for titanium and nickel-based alloys to a limbo contest and wondered “how low can it go?” Although demand was strong at the time, RT correctly forecast the vast oversupply in scrap materials. There was a true glut of specialty materials and the tonnage weighed heavily on prices.

Just when people concluded conditions could not get much grimmer, the world economy darkened the depressing scenario even further by taking the legs out from under the demand. Throughout 1998, there were 12 months of declining economic indicators on the world market, and—difficult as it may be to believe—as the markets enter 1999, things have gotten darker and conditions have gotten damper, in the specialty metals market.

Specialty material scrap dealers were hit with a double-whammy in 1998. Demand for finished product is lower today than at any time in this decade. As a result, the price of primary material is so low that many users see no benefit in going to the scrap market. It is becoming increasingly preferable to manipulate a melt with a pure or known blend that now costs little more than a scrap blend and does not carry the risk of contamination. In addition, there has been some real concern, both in the stainless and in the titanium markets, about the quality of the material offered by some scrap dealers.

When dealing with ferro-titanium, alloys with nickel and other items are seen as contaminated. However, it is difficult to get a machine shop to separate different kinds of blends. And a sizable amount of ferro-ti in a shipment of stainless 964 will simply ruin the whole load.

Given the poor demand for finished goods, the movement of stainless steel and titanium is lackluster at best. And, while many of the market-makers in the specialty metals arena are doing their best to maintain an upbeat air, the simple fact is that the metals are not moving at all.

“So much material is available in the market that it is unbelievable,” says Marc Simon of Joseph Simon & Sons, Tacoma, Wash. He notes the turndown in the golf industry as being responsible for much of today’s problems. “The boom of two years ago with the golf industry is a big bust today,” he says. Others look back at the support the golf industry gave in the past year or two and wonder how dismal things would have been without the craze for lightweight club heads.

TITANIUM

Indeed, there are no smiles in the titanium market. The saturation of the golf club market seems complete—only so many golfers are going to sink $350 into a titanium-headed driver and, after investing that much money, they are likely to keep the club for some time. On top of that, the aircraft market seems to be on the rocks. Boeing, at the end of the year, announced cutbacks, especially at its 747 production facility.

Jerry Turchin, president of California Metals, El Cajon, Calif., admits he misread the future of the airline market. “I was off by 180 degrees,” he says. “The downturn in the titanium market is worse than it is in stainless. It’s just terrible.” He points out that airline fleets are aging and need to be replaced. More people are flying, putting more wear and tear on aircraft. “Long before people invest in new golf clubs, I’d expect people to replace aging airliners. Aren’t the airlines going to replace their fleets?” The answer, at least in the short run, appears to be “no.”

Saying that the market has been poor is an understatement, says Hoy Frakes, director of purchasing for Timet in Henderson, Nev. He notes that titanium scrap production is directly related to the melt rate. Melt rates are down, so consumption is down.

There have been serious drops in the number of power plants and de-salinization plants on the drawing boards, and coupled with the drop in aviation, consumption of primary titanium has plummeted. However, the golf club industry may be hurting the scrap segment even more, percentage-wise, than the loss of capital goods markets. Frakes notes that the golf club market was a particularly good one for scrap titanium. The golf market is off from its mid-decade high consumption of 10 million pounds of titanium scrap to just 1.5 million pounds this year. That’s about an 85% drop in demand for scrap.

Turchin says he is picking up material, but is simply passing it along to someone else. “Let them hold the inventory in my name,” he explains.

The kindest word used to describe the market is “flat,” said with much the same tone of voice one would use to describe a dose of milk of magnesia.

“Titanium looks pretty grim,” says Jerry Stout, vice president of Global Titanium, Detroit, Mich. “The market is deader than I’ve ever seen.” He says things are so bad that he can not even entice mills to buy bulk weldable material at any price. “You have to be very creative with your marketing at times like this,” Stout says.

In Phoenix, Ariz., the story is the same. “The scrap market is very quiet. When you get into the specialty metals like titanium and the high-temperature alloys, it is impacted even more in this area,” says Irwin Sheinbein, commodity trader for Emco Recycling. Phoenix is one of those cities which is not big enough to have a booming trade in titanium, even in the best of years. “There is no direct consumption, so the material goes to Los Angeles or other, more populated centers,” he continues.

Even in areas like Los Angeles, prices were less than rewarding regardless of the metal. Stainless steel, over the scale, was fetching about eight cents per pound.

This contrasts with the demand for titanium products which was at record levels in 1997, according to Joseph Gambogi, titanium specialist with the U.S. Geological Survey (USGS), Reston, Va. Today it’s dead in the water. New scrap metal recycled by the industry ran about 26,500 tons in 1997. Estimated use of titanium as scrap and in the form of ferro-titanium made from scrap by the steel industry was about 5,300 tons; by the super-alloy industry, 750 tons; and in other industries, 1,200 tons. Old scrap reclaimed was about 200-400 tons.

Production of ingot was about 58,000 tons and mill products ran about 33,500 tons. People were anticipating several startup operations coming on-line. They included a 9,000-ton per year furnace in Morgantown, Pa., a 10,000-ton facility in Richland, Wash., and a 3,000-ton expansion of an existing Ohio plant. In Salt Lake City, Utah, a 340-ton sponge facility completed its first year of operation. All of that production is doing nothing to help the market today.

Exports of Russian ingot were strong last year. But the Thai market has seen no action at all, says Simon. In fact, he took a serious look at the possibility of moving some material overseas and discovered that they are exporting turnings to the United States. “I talked to consumers and they simply don’t want it,” he says.

Jim Nathan, vice president of CBC Trading, a division of Charles Bluestone Co., Pittsburgh, Pa., calls the market “pretty sloppy.” Movement has been “sporadic,” he says.

The end of the year has been the traditional time for titanium companies to get their books cleaned out so things are in order on Dec. 31. Meanwhile, the domestic aerospace industry seems to have cooled off. Demand is being taken up with what is in inventory. And, the market saw a fairly dramatic erosion of price.

An east coast titanium buyer noted that other areas which might traditionally be expected to step in and take up the slack have not come to the foreground. Ferro-titanium, for example, is not too attractive due to the poor world market. The U.S. steel mills are taking it on the chin because of imports. “It’s going to be an interesting next few quarters,” he says.

In short, the price of scrap is low and activity is low. On top of the low demand, industrial generators of scrap seem to be fully booked with business well into 1999. That means there will be more scrap.

Turchin notes that the brokers are holding on to the physical inventory. “Even with a pickup in demand, it will take a long time to use up all that inventory,” he says. “That’s not good.”

HIGH-TEMPERATURE METALS

The stainless market is also in the doldrums. “There is very little demand. Numbers are low. The only activity is dealer buying,” says Gerry Cohen, president of Atlantic Stainless, North Attleboro, Mass.

He sees absolutely no sign that the market will improve in the near future. No hope at all? “Demand will definitely improve—within the next 30 years,” he concedes. He points to the general slump in the world economy as the reason for the slack market.

In Phoenix, Sheinbein noted some year-end activity of stainless product moving off the West Coast. However, he credits it to previous sales orders that were being filled. The story in the stainless market, he says, is about the same as it is for titanium: little movement. With the overseas market quiet, nothing is happening. “But there’s always hope,” he says.

In the Midwestern Heartland, stainless clips were going for as little as $350. However, it seemed most material was staying around the $390 level unless the seller really had to move the material out. The market for trimmings was also pretty dismal, with material moving at prices $100 below that of clips.

Neither Boeing, the Chinese, nor the Japanese were buying in any quantity. The situation in Russia has not helped. Peter Kuck, nickel specialist with the USGS, states the situation succinctly: “The world situation put downward pressure on the price. Developing countries continued producing product so supply went up. Demand was flat to weak, depending on the commodity.”

It is not just that prices are depressed. So little material is moving that there was no chance even to make up for low prices with volume. “There is not enough volume for anyone to make a buck,” says Cohen. What is moving in the domestic market is going to dealers. Material going offshore is going to consumers, Cohen says.

The big news a year ago was the discovery of nickel in the Voisey’s Bay area of Labrador, Canada. There have been numerous reports of Australian projects coming on-line in 1999 and 2000. Now, nobody even wants to hear about more production coming on-line. There appears to be little market at all, whether in the United States or overseas.

“In the case of nickel, the price of scrap is being affected more than the price of the primary material,” Kuck says. “Why fool with scrap when you can buy virgin nickel? There are no contamination problems, no problems with blended scrap.”

The price of 18/8 scrap dropped steadily through the end of 1998. In August, USGS pegged the price at $5.53 per long ton in the U.S. market. In September, it dropped to $5.18. By October, the price had dropped under $5 to an average of $4.95. The November price was even less. “1998 was not a great year,” Kuck says. Elsewhere in the world, the story was pretty much the same.

“Stainless steel finished products in India and the other major countries in Asia are in an over-supply situation,” says Gopal Gupta, director of Gopal Udyog Limited, Delhi, India. “Stainless steel scrap is also in abundant supply in many Asian countries. But India is an importer of stainless steel scrap,” he notes. Within the Asian region, there is both import and export of stainless steel scrap.

“Overall, the supply of stainless steel scrap is very good,” Gupta says. Gopal Udyog obtains its scrap from a mixed source of suppliers. “We are mainly using industrial stainless steel scrap like plate, pipe cuttings sheets rejects, cuttings, end pieces and so forth,” Gupta explains.

MOLYBDENUM

There was some recovery of molybdenum metals and super-alloys, but the amount was small, according to USGS. About 1,000 tons of moly was reclaimed from spent catalysts.

Molybdenum had cruised through an uneventful year in 1997. According to USGS, the domestic price for technical-grade molybdic oxide averaged $8.50 per kilogram of contained molybdenum during 1997. But the market in 1998 pretty much paralleled the market for other specialty materials. The outlook for early 1999 appeared similarly lackluster.

HOPE IN LATE 1999?

It is unlikely that the dismal market will last forever. Stout holds out some hope for improvement in the titanium markets later in 1999. “I don’t think 1999 will be anywhere close to being a banner year,” he says. “I don’t see any light at the end of the tunnel until later in the second quarter when inventories become depleted.” After that, he does have some hope that there will be a bit of acceleration in the market.

Others say that an upswing in titanium in the second quarter is optimistic, but allow that things could turn around later in 1999.

The recession has hurt the demand for stainless steel products in India. “It seems more or less the same situation prevails in other Asian countries, too, all over the world,” Gupta says. “This situation does not seem likely to change much in the near future. There are expectations by some however, that the demand might pick up by the second half of 1999,” he concludes.

“It’ll be interesting to see what happens in the first quarter scrap bids,” says Marc Simon. “I don’t look for anything to happen through the first quarter.” In fact, as 1998 ended, he was even questioning whether or not to play in the market.

He has some sympathy for the producers of scrap. “Machine shops have not come to grips with the reality of the market,” he says. “They still are cutting on expensive billets.”

“I don’t see anything improving through the year 2000,” says Timet’s Frakes.

Industry optimist Jerry Turchin scratches around for some good news: “The good news is I’ll be alive and in business. When I’m alive, there is hope.” Then he adds, “Other yards will not be alive.”

From top to bottom, then, in almost every commodity, specialty metals market prospects are gloomy. Perhaps somewhere, someone is inventing a featherweight titanium tennis racquet or a stainless steel toy which will be as popular as Beanie Babies. Otherwise, it is tough to project any serious upturn in the market in the near future.

The author is an environmental writer and Recycling Today contributing editor based in Strongsville, Ohio.