The Glimmer of Stainless

Stainless steel has been around for approximately 100 years. During that time, the metal has shown an annual growth rate of 6 percent, something very few metals can claim.

World stainless steel production reached 28 million metric tons last year. Meanwhile, prices for stainless steel have been climbing. The key reason for the price increase is the soaring price of nickel.

For 2007, smelting production is expected to be approximately 27.7 million metric tons, with about 14.7 million metric tons of finished product. Approximately 5.4 million metric tons of long product and 19.3 million tons of flat products will be produced. Both of these product groups will increase by roughly 12 percent this year from the weak production figures posted last year.

A REGIONAL OUTLOOK. The stainless steel market is a high-quality industry with one clear trend: Either a company focuses on producing long products or on producing flat products; few manufacturers produce both.

The largest flat-products plant in Europe is Outokumpu’s Tornio Stainless Steel works in Finland. The company also has plants in Sweden and Britain.

Dusseldorf-based ThyssenKrupp Group has plants in the German cities of Krefeld and Bochum as well as its largest stainless steel plant in Terni, Italy, just north of Rome.

Arcelor Mittal is building its new Carinox steel plant in Charleroi, Belgium. According to the company, the plant is a major strategic structural investment in stainless steel, allowing the company to close its steel plants in Ardoise and Isbergues in France.

Another European-based company, Acerinox, operates a stainless steel plant in Spain close to Gibraltar.

The market for stainless steel flat products in Eastern Europe looks much weaker. There is only one plant, which smelts sporadically. However, there is some long product production in the Ural region of Eastern Europe.

The United States continues to hold its own in the arena of stainless steel production, with plants in Pennsylvania, Ohio and Kentucky.

In the United States, Acerinox’s subsidiary, North American Stainless (NAS), has opened the largest stainless steel project in the country in Kentucky. Earlier this year NAS announced an ambitious plan for the facility, where it will be adding a ladle furnace, which is expected to start by next March. With the addition, melting capacity for NAS will reach nearly 1.4 million metric tons per year, with 200,000 metric tons earmarked for stainless steel billets.

The company also announced that it has entered into a contract to install its fifth cold rolling mill, scheduled for completion by April 2009. With the additional capacity, NAS’s production will be 846,000 metric tons per year.

In Latin America, Acesita, based in Brazil, is the only stainless steel flat products producer. Another stainless producer in Latin America, Acinox, which was nationalized by Venezuela, now smelts in Cuba.

Stainless steel production in Asia continues to grow. In Asia, when you exclude China, the largest stainless steel producing countries are South Korea and Japan. The largest plant in Asia outside China is a Posco operation in the Pohang region of Korea. The mill produces roughly 2 million tons of stainless steel per year.

Japan is home to five manufacturers of flat products and to many different long products producers. The Nippon Steel & Sumikin Stainless Steel Corp. (NSSC Steel Group), jointly owned by Nippon Steel (80 percent) and Sumitomo Metals (20 percent), also has two stainless steel plants in Taiwan.

On the flat products side, Jindal Group and Shah Alloys, headquartered in India, deal primarily with chrome magnesium.

China’s largest company is Shanxi Taigang. Two additional steel plants have been built in the country, resulting in another 1 million metric tons of capacity. A subsidiary of a Taiwanese company is building a 700,000 metric-ton-capacity mill in China.

FINDING THE QUALITY. Europe is currently making the highest-priced stainless steel. U.S.-produced stainless steel is selling for less than European products, which has not happened in 20 years. The price of Chinese stainless steel is 500 Euros less than prices for stainless steel made in Germany.

There are 15 prominent manufacturers of stainless steel flat products, three of which (Thyssenkrupp Stainless, the Acerinox Group and Posco) manufacture around 1.8 million metric tons. Other larger stainless steel producers include Outokumpu and Arcelor.

All the other flat products producers manufacture less than 1 million metric tons, with the smallest works producing approximately 400,000 metric tons.

Meanwhile, the largest 10 flat producers control 72 percent of the market today, which means that the market has consolidated significantly. The consolidation of stainless steel producers is far greater than that of carbon steel producers. With this tight market, the primary plants find themselves in a position to raise prices quickly when markets demand it.

For long products, the top producers are Changwon Stainless (a subsidiary of Posco), Ugitech and Schmolz+Bickenbach, which is partly controlled by Swiss Steel firm Roldan (Acerinox), and Cogne. All these companies have output of around 200,000 metric tons.

The top 10 long products producers control roughly 45 percent of the market, and the profit margins are higher than with flat products. Also, marking a significant difference between the two product sectors, many of the long products companies are still family owned.

SCRAP SUPPLIERS. About two-thirds of the nickel used in stainless steel production comes from primary nickel production, while the other third, roughly 7.1 million metric tons, comes from scrap.

Last year in Europe, the amount of stainless steel scrap collected, mostly from Russia and the Ukraine, totaled around 350,000 metric tons. Europe also is receiving around 150,000 metric tons of nickel scrap from Turkey.

Meanwhile, Europe ships roughly 230,000 tons of nickel to Korea and Taiwan, with around 60,000 metric tons going to China.

The United States, on the other hand, is a clear net exporter of nickel scrap, with about 110,000 metric tons being shipped to Asia. Further, the United States supplies about as much material to Europe as it does to China. Asians are heavily dependent on nickel supplies from Europe and the United States to make stainless steel.

Meanwhile, during the same time, Japan has swung from a net importer of scrap nickel to a net exporter, sending a majority of its nickel to China.

While scrap nickel is a globally traded commodity, less than 20 percent of the material is exported; more than 80 percent of the scrap that is produced in one place is consumed in the same geographic region. This holds true for the United States, Europe and Asia. While it may be surprising, the number has not changed significantly throughout the past 20 years and will likely be somewhat similar in the near future.

AREAS OF GROWTH. The majority of the new stainless steel smelting capacity that is being planned, around 75 percent, is being built in China. In China, roughly 1.6 million tons of production came online last year; next year, more than 2.2 million tons of new capacity is expected to come online. In comparison, the rest of Asia should be fairly quiet.

In North America, there will be some new expansion projects, although nothing too significant. In Europe, we see some new capacity expansion. Other countries such as Vietnam are adding new capacity to produce high-quality steel. Many of these projects are far along.

This year stainless steel prices should remain high, though they are expected to fall a little bit next year. The decline in stainless prices means that nickel prices should also fall.

Reflecting the strength in nickel markets, the utilization rate for nickel was around 102 percent last year, causing a supply deficiency. This year, the capacity utilization rate is expected to dip to 100 percent. Next year it is forecast to decline even further. However, with only a handful of larger manufacturers, prices for stainless steel will likely remain fairly high.

Meanwhile, the demand for stainless steel in North America will be somewhat soft, though markets should remain strong in Europe and Asia. Even though the whole global economy is somewhat uncertain, the expectations are that prices should be at their high point by the first quarter of this year.

Adding to the strength, inventories of stainless steel continue to shrink. In mid-2005 in Germany there was 90 days of stainless steel inventory, but by the middle of last year, inventory levels had declined to 60 days. Meanwhile, inventory levels in the United States are a quarter less, while they have declined by 20 percent in Japan and 25 percent in China.

With the shrinking inventory of stainless steel, the scrap recycling industry must convince the stainless steel industry that on a long-term basis high-grade stainless steel scrap is the best source for nickel.