The Loading Dock

Salem, Ohio, and the towns surrounding it are not renowned for being high-crime areas. And yet just in the spring of 2007, several thefts of metals and metal items have been reported in the eastern Ohio town and ones nearby.

According to the Salem News Web site, "Police [in Salem] are connecting industrial thefts at opposite ends the city [that occurred] over three days."

Citing a Salem police detective as its source, a mid-April newspaper item refers to two thefts occurring in one industrial park. In the first incident, thieves took 12 stainless steel castings from one company valued at $3,700 and another $1,000 in stainless steel rails and aluminum from a nearby machine shop.

Those thefts were reported on a Monday morning, meaning they most likely occurred the preceding weekend.

That same Monday afternoon, another theft of approximately $8,000 in aluminum was reported by a company across town. Detectives have concluded that the thieves pried open an overhead garage door at that business, and that most likely more than one person and a truck had to be used to haul the materials away.

In a late March edition of the same newspaper refers to another metals theft in a nearby township—this one involving some 2,000 pounds of titanium, according to the Salem News.

report, both the FBI and the victim’s insurance company are investigating the incident.

Manufacturers in the United States who use stainless steel as a raw material have certainly noticed the soaring price. If it helps any, they can take comfort in the fact that the pricing phenomenon is global.

Less comforting, however, is that one overseas analyst sees the higher pricing remaining in place for awhile.

Markus Moll, managing director of a firm called Steel & Metals Market Research based in Germany, is predicting continued high nickel and stainless steel prices. (With nickel being a key ingredient in stainless steel, the prices usually move in tandem.)

In a presentation offered earlier in 2007, Moll remarked, "This year stainless steel prices should remain high, though they are expected to fall a little bit [in 2008]."

As with all commodities with soaring prices, demand is out-pacing supply, according to Moll. "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."

Demand for stainless steel may only be static in North America, but the trouble is that pricing reflects the overall global market. "The demand for stainless steel in North America will be somewhat soft, though markets should remain strong in Europe and Asia."

Moll continues, "Adding to the strength [in pricing], 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."

In such a situation, stainless steel makers should have full order books, and their melt shop managers will be hungry for stainless steel scrap. "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," says Moll.

Manufacturers who use titanium to make their products helped bring black ink to the bottom line of metals producer Allegheny Technologies Inc. (ATI), Pittsburgh.

In the news release accompanying its most recent quarterly results, the company reported net income for the first quarter of 2007 of nearly $200 million. That compares to a figure of $106 million for the first quarter of 2006.

"Our key growth markets, namely aerospace and defense, chemical process industry, oil and gas, and electrical energy, remain strong," says L. Patrick Hassey, chairman, president and CEO of ATI.

Both sales and margins appeared to be strong for the metals producer. "First quarter 2007 sales increased 32 percent compared to the first quarter 2006, and net income increased 86 percent. ATI achieved total segment operating profit of nearly 25 percent of sales," says Hassey.

"First quarter 2007 shipments of our titanium mill products to airframe customers far exceeded our original expectations, while shipments of standard grade titanium and nickel-based alloy bar products were slightly lower in the first quarter due to inventory corrections by distributors, especially for medical and oil and gas applications," Hassey continues.

The cost of metals is prompting some manufacturers to hold off purchases, according to Hassey.

"We are also seeing some customers for our nickel-based alloys and superalloys being cautious with their inventory levels due to the unusually high cost of nickel. Notably, demand for our exotic alloys is very strong, schedules are extended, and our order book is at an all-time record level. We are putting new emphasis on operational execution along with planned capital expansion to increase available capacity of our exotic alloys in 2007 and beyond."

Hassey says the dilemmas caused by high pricing is not lost on ATI. "We remain sensitive to our customers’ concern with the dramatic increase in the cost of nickel. As a result, we continue to assist customers in switching to lower nickel-bearing alloys, a process that has changed our product mix and continues to gain momentum."

ATI is promising expanded to capacity to help meet the strong demand. "The tenth titanium sponge reduction furnace at our Albany, Ore., facility began production in mid-April, bringing our current annual titanium sponge capacity at this facility to approximately 13 million pounds. We now expect the Albany facility will be capable of producing 22 million pounds annually of aerospace quality titanium sponge by the first half of 2008. In addition, we remain on schedule to begin producing premium grade titanium sponge at our Rowley, Utah, facility by the end of 2008, with an additional 24 million pounds of annual capacity expected to be reached by mid-2009. The Utah facility will have the infrastructure in place to further expand capacity to 42 million pounds annually, if needed."

The new capacity will be needed, if ATI’s projections are accurate. "Titanium alloy shipments under long-term agreements are expected to increase from first quarter 2007 levels over the course of the year."