November/December 1999
In 1999, metals have crawled back from the abyss of 1998. And as corks pop to toast the new millennium, most metals have cause to celebrate brighter prospects ahead.
It wouldn’t be right to enter the new millennium on a down note, now would it?
And fortunately, it looks as if most metals have reason to be cautiously optimistic as this year—and this century—wind down.
Of course, any positive market news is welcome after the disastrous market situation in 1998 and early 1999, which saw many world metal prices nosedive to startling (even record) lows. Not that the markets are bouncing back like superballs, mind you. Recovery will be more of a slow, steady climb out of the havoc wreaked by the financial crises that threw Asia, Russia, and Latin America for a loop.
Somehow, the U.S. economy seems to have avoided contracting the Asian flu. What it couldn’t avoid, however, was the negative effect of foreign metal—both primary and secondary—pouring into the U.S. market. A few antidumping suits, some strengthening in overseas markets, and improved supply-and-demand balances in many markets, however, have helped give metals a sounder footing.
Some metals—namely aluminum and copper—have also been enlivened in 1999 by merger mania. The consolidation activities of Alcan-Pechiney-algroup, Alcoa Inc. and Reynolds Metals Co., and Phelps Dodge Corp., Asarco Inc., Cyprus Amax Minerals Co., and Grupo Mexico S.A. de C.V. promise to have far-reaching effects on the fundamentals of those markets.
With no one quite sure what the new millennium and its Y2K phobia will bring, speakers at ISRI’s annual commodity roundtables—held Sept. 14-15 in Chicago and Oct. 7 in Pittsburgh—ventured their best-guesses as to what the future could portend for aluminum, cobalt, copper, iron and steel, lead, nickel, stainless steel, and zinc.
Aluminum in Motion
The recent flurry of mergers in the aluminum industry are just the start of a consolidation phase that should last at least into the first quarter of 2000, said James Southwood, president of Commodity Metals Management Co. (Pittsburgh), at the aluminum roundtable.
His prediction: Expect more aluminum companies to either join forces with one of the two big firms—Alcan-Pechiney-algroup or the proposed combination of Alcoa Inc. and Rey-nolds Metals Co.—or else unite to form another conglomerate.
Southwood explained the current merger mania by pointing to the concept of “reversion to mean,” which indicates that over time the price of primary aluminum stays relatively constant at $1,500 a mt, or roughly 68 cents a pound, based on the LME spot price. With aluminum prices so static, primary producers can only increase earnings over time by cutting costs or creating new value-added products, especially for the automotive industry, he said.
As far as the overall aluminum market, 1999 should end with a 200,000-mt surplus, followed by relatively flat supply and demand in 2000 and a “fairly sizable deficit” in 2001, Southwood forecast.
Calling himself “mildly bullish” on short-term aluminum prices, he predicted an initial increase to roughly $1,600 a mt followed by a potentially rapid rise early next year once certain possible bearish factors become known quantities.
Those factors include whether China will devalue its currency and what the Federal Reserve Board will do about U.S. interest rates. One factor, though, seemed to be resolved in favor of the bulls by presstime: The United Automobile Workers was unlikely to go on strike against the Big Three car manufacturers.
Southwood’s bullish view is based on an analysis of historical data—specifically, four price downturns in which the LME monthly cash average fell below $1,500 a mt since the exchange began trading aluminum in 1979. When all four downturns are considered equally, they averaged 29 months in duration. So, with the current price downturn already 21months old at presstime, Southwood predicted that prices would soon turn positive.
He conceded, though, that one of those historic downturns, in 1996, was unusually short—just six months. The other three—from 1980-1983, 1984-1987, and 1991-1994—lasted an average of 37 months. Thus, if 1996’s downturn was an aberration, the current trend could stay below the $1,500-a-mt mark for another year or more.
Southwood also warned that many companies will eventually be squeezed out of the aluminum scrap supply chain, with their profits shrinking to the point that they resemble little more than a “commission or tip” for services rendered.
Nymex’s New Aluminum Contracts
Though North American firms in general and U.S. companies in particular have historically been the largest aluminum producers in the world, it has never been easy to determine competitive U.S. prices for aluminum on a timely basis, said two executives from the New York Mercantile Exchange (Nymex)—A. George Gero, a member of the board of directors, and Richard Strait, senior marketing manager, metals.
Instead, the chief price available was “an amalgam of international costs and conditions” from the Far East and the LME, which didn’t reflect labor, transportation, or smelting costs in North America or North American supply and demand, Gero explained. As a result, buyers and sellers of North American aluminum products “never really knew if they were receiving market price,” he said.
And while a weekly North American price was available from a magazine survey, “in a big and dynamic market, Saturday’s published price is not Tuesday’s price,” Gero noted.
To that end, Nymex launched two new contracts this year—an aluminum futures contract in May, followed by an aluminum options contract two months later.
Nymex has two goals for these contracts. The first is to ensure the North American aluminum industry against price risk, Gero said. “Whether one comes to the aluminum market as a manufacturer, a smelter operator, or secondary user of the metal,” he stressed, “price risk is just as omnipresent in this part of the world as it is in Europe.” The futures contract is designed as “a safe and economical way for all segments of the North American aluminum industry to lay off risk,” he said.
In addition, Nymex hopes the contracts will make North American aluminum prices more transparent. Gero sees the futures contract becoming “a publicly accepted benchmark for North American aluminum prices.”
He conceded, however, that Nymex “would like to see more volume” from the contract, which has been averaging only 50 or so contracts a day. James Southwood added that while he feels the aluminum contract is overvalued, “it’s way too early to tell” whether the instrument is viable. That determination is at least two years away, he said.
Automotive Demand Drives Aluminum
With automobiles and light trucks forming the number-one market for aluminum, several new efforts were launched this year to “accelerate the use of aluminum in automotive structures and components,” said J. Stephen Larkin, president of the Aluminum Association (Washington, D.C.).
In June, the Aluminum Association’s Automotive and Light Truck Group (now working in cooperation with the London-based International Primary Aluminum Institute) joined forces with General Motors Corp., Ford Motor Co., and DaimlerChrysler Corp. to form the Auto Aluminum Alliance (A3), Larkin explained. The A3 effort plans to explore various programs aimed at resolving the “technical and economic challenges” to increased use of aluminum in automotive applications, including joint projects, educational efforts, and improved technical support.
The alliance’s most ambitious joint project will involve scrap sorting, Larkin stated.
Scrap’s vital role is evident in the fact that 70 percent of secondary aluminum ingot is now used in automotive applications, Larkin noted, with aluminum translating to as much as 50 percent of a vehicle’s scrap value. The A3 scrap sorting project hopes to “develop a system for sorting scrap that is acceptable and has common reference points for customers, scrap dealers, and aluminum producers,” he said.
The average aluminum content in North American vehicles has reached 245 pounds—up 36 percent in all vehicles since 1991 and up more than 50 percent in light trucks, Larkin reported. Thus, a common approach to recovering automotive aluminum will benefit everyone involved in the process, he said.
Though Larkin sees sheet and extruded aluminum products as the next big push in automotive applications, James Southwood was less confident. Using such products would require more retooling and redesigning of high-volume vehicles than present aluminum prices justify, he argued. Larkin countered that the number of sales required for “high-volume” vehicles is diminishing, which has “positive implications” for aluminum usage.
Copper at the Crossroads
According to Paul Dewison, managing director of Metalica Ltd. (Suffolk, England), today’s world copper market is poised at an “important crossroads,” and current prices are above nearly all analysts’ expectations—“including ours.”
In trying to understand and justify the higher prices recorded so far in 1999, Dewison asserted that supply-and-demand fundamentals have, in fact, changed and that today’s price mechanism vis-à-vis stock levels works differently than in the recent past. Industry consolidations are also a factor that he believes will have a “positive impact on price” in the longer haul.
Looking closer at market fundamentals, the world copper market appears to be “more or less” in balance, not swamped with metal as other analysts assert, Dewison said. In his view, the assumed 1998 surplus was, in fact, smaller than believed and positive consumption, coupled with announced production cutbacks, has resulted in a modest surplus of 125,000 to 150,000 mt for this year. Most of that, he noted, was recorded in the first quarter. The second and fourth quarters are expected to show deficits. Higher stocks notwithstanding, relatively high prices can be achieved while the absolute level of exchange stocks remains very high, he said.
The effect of this change in the supply-and-demand equation will be positive for copper prices in the medium term. In 2000, the LME average could reach $1,875 a mt (85 cents a pound), touching $2,000 a mt (91 cents a pound) by the end of the year, Dewison forecast.
A Copper Deficit in 2001?
Offering another look at copper’s fundamentals, Fred Demler, senior vice president of ED&F Man International Inc. (New York City), said the market will record a modest second-half surplus this year.
On the demand side, he noted, global copper consumption in the past couple of years has revealed a mixed picture, though it appears that overall consumption bottomed out in the fourth quarter of 1998. Demler thus forecast a rebound in the second half of this year, with overall growth pegged at 1.6 percent in 1999 and 3.9 percent in 2000.
Addressing supply, Demler noted that world mine supply has been sharply curtailed due to lower copper prices, which have also brought about “tight” scrap supplies. Planned new capacity has been virtually offset by cutbacks, resulting in modest growth in refined supply next year. In Demler’s view, refined supply could increase from 11.9 million mt this year to 12.2 million mt in 2000. The net result points to a surplus of 200,000 mt in 1999, dropping to a 15,000-mt surplus next year and a deficit in 2001. Though stocks will show a small increase next year, that number falls from 6.6 weeks of consumption to 6.4 weeks when expressed in terms of weeks’ usage, he said.
According to Demler, the world copper market is now near equilibrium, with the recent price of 80 cents a pound neither overvalued nor undervalued. In the near term, the sentiment is positive, with price forecasts ranging from 85 to 90 cents in the fourth quarter. In 2000, first-half prices could rise to the 90-to-95-cent range and then recede in the final six months back to the 85-to-90-cent range.
Exporting Copper to Asia
Asia is still struggling from its financial meltdown of more than a year ago, and its copper scrap demand is still only about half its 1997 level, said Sam Lee, president of Sam Lee Enterprises Inc. (Westminster, Calif.). In Korea, for example, imports have fallen from more than 20,000 mt a month two years ago to just over 8,000 mt a month this year.
Though certain markets have recovered strongly, industrial and residential construction continue to lag, Lee said. Nevertheless, the market for copper scrap is showing signs of improvement. In his view, the copper scrap export business to Asia will come back “stronger than ever” within six months to a year because “the Asian market is and always will be a net importer of copper scrap.”
Looking at China and Hong Kong, Lee explained that following years of active trade, the Chinese government recently imposed new import restrictions that have temporarily shut down scrap shipments into China. There were several reasons behind this action, he said, with the net result being a “nightmare” for both buyers and sellers, with literally tens of thousands of containers held up at Chinese ports.
According to Lee, Chinese government officials found containers that were misdeclared and mislabeled, thus causing further delays. To discourage false importation of scrap metal, the government took several steps, such as increasing import duties and restricting licenses. The market, he said, hasn’t yet improved enough to offset these added costs. The bigger problem, he added, would be the devaluation of the Chinese currency.
The problems experienced in China caused what Lee termed an “overflow” of copper scrap throughout Asia. With fewer markets available, suppliers have been forced to make “cheap sales” to Korea and Japan, which he called “the only viable markets left in Asia.” In fact, many scrap traders are making “desperate sales” to maintain cash flow and limit inventory holdings, Lee said.
Despite the challenges to remaining a credible supplier, Lee recommended that exporters ought to think in terms of being long-term shippers to China to maintain market share.
Contracts, he explained, are done year-round at fixed quantities, but allowances are made for premiums to be adjusted every quarter. Most contract business is based on the LME or Comex, though the LME is the preferred reference for most Asian business, Lee said.
In addition to price considerations, quality concerns have increased dramatically in the past few years. Importers who may have once preferred price over quality have changed and will now reject material that they previously just downgraded. Resolving a claim quickly is the best way to keep one’s standing and reputation with customers, observed Lee.
Seeking a Few Good Suppliers
Mi Ahn, president and CEO of PMX Industries Inc. (Cedar Rapids, Iowa), reviewed PMX’s entry into the North American market as a producer of copper sheet and strip. The facility, she noted, is now in its seventh year of production and is believed to be the third-largest rolling mill in the United States. PMX is a major supplier of copper alloy/brass strip and copper/ nickel-clad strip, the latter of which is made for the U.S. Mint for coinage.
PMX’s principal focus is building and nurturing what Ahn termed “copper-based partnerships” with its customers and raw material suppliers. The company is determined to be an ISO-certified “ideal supplier” that can provide just-in-time delivery with zero defects.
In short, Ahn stated, PMX is committed to “delighting” its customers. This same theme, she said, carries all the way through the company’s operation, from meeting its customers’ expectations to finding ideal raw material suppliers. When considering scrap suppliers, PMX looks foremost for reliability—from packaging to on-time delivery with no margin for error. Suppliers, Ahn stressed, must be responsive and able to deliver “value”—and, in turn, “delight” PMX.
These demands, she said, have trimmed PMX’s supplier base to a handful of what she termed “core customers” that currently sell PMX refined and scrap copper. In closing, she urged suppliers to get to know PMX as well as PMX knows itself.
Ferrous Scrap on the Rebound
While No. 1 HMS has recently hovered around $100 a gross ton, it may rise $35 to $40 a ton by next summer, said Peter Marcus, managing partner of World Steel Dynamics Inc. (Englewood Cliffs, N.J.), who based this prediction on several market factors, including:
- periods of sharp declines for steel scrap are usually followed by sizable recovery;
- demand for obsolete scrap is beginning to rise on a year-to-year basis, showing a 7-percent gain in July 1999 compared with 1998;
- a forecast tighter supply-and-demand equation for the global steel industry in 2000; and
- signs of tightness in some products that affect the supply-and-demand balance for steelmakers’ metallics. Pig iron prices, for instance, have risen from $90 a mt, f.o.b. port of export, at the start of 1999 to about $115 a mt in September. Slab prices have also increased in the same period from $148 a mt, f.o.b. port of export, to about $195 a mt. In addition, steel scrap prices have risen in the United States and Japan, though they’re still weak in Europe, Marcus said.
Over the next decade, steel scrap prices could average “$10 to $15 a ton higher, or about 3 to 5 percent over the cycle, than in the past decade,” Marcus forecast. One reason is an expectation that global steel demand will rise at least 2.1 percent a year in the next decade. Marcus also predicted “sizable constraints for each of the three sources of steelmakers’ metallics [pig iron, steel scrap, and scrap complements] in the next decade.”
Addressing each of these, he noted first that pig iron output may not rise. Second, the collapse of steel scrap complement prices and the shakeout in facilities will make it harder to obtain financing for merchant plants, Marcus maintained.
As for steel scrap, recovery of both home and new scrap will likely be restrained, while recovery of obsolete scrap “will be dampened in the next 12 years by relatively slow growth of the global reservoir of steel scrap that is, on average, 8 to 30 years old,” he said.
Scrap Exports Recovering…Slowly
“It appears as if the steel scrap export market has hit bottom and is slowly inching upward,” said Gary Schnitzer, executive vice president of Schnitzer Steel Products Co. (Oakland, Calif.).
About two years ago, when the Asian economy fell apart and processors began to lower their scrap buying prices, many thought the scrap flow would come to a “screeching halt.” Instead, Schnitzer said, prices collapsed but the flow of scrap continued, albeit at a slower rate.
While the scrap export market may be looking up, it will take “some time to return to price levels previously enjoyed,” Schnitzer said. One positive sign is that scrap prices in Japan are moving up, he said. There have also been increases in imported slab prices, which should “help restore some balance to our market,” and scrap complement producers are encountering cost problems, he noted.
On the demand side, however, only some West Coast mills are running their rolling mills at full capacity, Schnitzer reported. Domestic mills continue to be hurt by steel imports. U.S. scrap processors are also being hurt by imports of steel and scrap from Russia and other C.I.S. countries, which will continue “unabated, with little or no controls in place, perhaps until a mill experiences a mill-threatening scrap quality shipment,” Schnitzer said.
Tracking European Scrap Flows
More and more scrap is flowing out of Eastern Europe, with much of it is coming into the United States, said Detlef Mueller, president of U.S. Ferrous Trading Inc. (Greenwich, Conn.).
Though Russia reportedly imposed a 15-percent tax on ferrous scrap exports, material—said to be primarily Ukrainian scrap—has still managed to arrive in Europe and the United States at discounted prices. More U.K. ferrous scrap has also been flowing into the United States.
In terms of European demand for steel scrap from Eastern Europe, consumers had formerly requested 50/50 packages (50 percent No. 1 and 50 percent No. 2). Recently, they’ve been seeking 70/30 packages, indicating a greater interest in better-quality material, Mueller reported. Turkey, while still a major consumer, has been purchasing less than before, and some smaller shipments have been moving to Spain, he said.
Most of the material being shipped has been shredded scrap, though there’s some industrial tonnage being exported from the United Kingdom, mainly bundles and busheling, Mueller noted.
Is Lead Marking Time?
Lead prices have remained relatively flat this year, with the LME three-month price averaging 23.2 cents a pound from January to August and the metal trading within a penny-and-a-half from its monthly high or low. With lead not attracting much speculative interest, experts wonder whether the metal is simply marking time until a fourth-quarter rally. Conversely, others argue that supply will easily match demand in 1999 as secondary lead smelters increase output.
Though batteries dominate lead demand and enjoy an upward trend in consumption, there’s also a niche market for fabricated products that accounts for 5 to 10 percent of the overall lead industry, explained Gregory McClain, vice president and general manager of Seafab Metals Co. (Casa Grande, Ariz.). Ammunition represents about 55 percent of the fabricated market, he said, with rolled and extruded products accounting for 20 to 25 percent and castings making up the balance.
None of these areas is a growth business, McClain conceded. He noted that competitive shooting is the single-largest consumer for lead ammunition, but younger people aren’t showing much interest in the sport. Likewise, the fact that a lead roof could last a couple of hundred years isn’t a great selling point in a society that will probably tear down the building long before the roof wears out.
Seafab Metals uses roughly 30,000 tons of lead annually, with most of that purchased in ingot form. Though the company relies heavily on virgin ingot, it also recycles lead internally and purchases scrap lead “so long as it meets the chemical specifications we asked for,” McClain said.
For scrap lead consumers, however, it’s essential to know where the recovered lead came from—that is, how was it used originally—and how it’ll be used in the future, McClain stressed. He knows of a lead fabricator who unknowingly took radiation-contaminated lead and converted it into a product that was then sold to a company manufacturing radiation shielding aprons, which were then used in medical offices. Though the amount of radiation involved wasn’t harmful, these “glow-in-the-dark” aprons caused everyone involved “a lot of grief,” he said.
Counterweights in forklifts, cranes, and other such equipment offer the best market for scrap lead, McClain said. He quipped: “So long as [the counterweight] is heavy enough and gray enough, that’s all they really care about.”
An International Lead Perspective
Michael Weiss, a Dallas-based engineer and consultant, offered an international perspective of secondary lead smelting, focusing on programs in Poland, Romania, and Egypt.
Contrasting these projects with the secondary lead industry in the United States, Weiss noted that in former Communist countries such as Poland and Romania decisions had been made by a central bureaucracy, “usually not based on economic considerations as we know them. Now the companies increasingly must compete in a free market and are often handicapped by unsuitable technology or high costs inherent in the location of the facility.” And while secondary smelters in Egypt do benefit from an American-style entrepreneurship, many smaller firms suffer from limited access to capital and a dearth of technical skills.
In Poland, for instance, Weiss served as a technical adviser on projects involving waste minimization and pollution prevention at various nonferrous companies, including a former primary lead producer turned secondary smelter. The company also operated a battery wrecker on a site approximately two miles from the smelter. Though combining the wrecker and smelter at one location would have saved the company material handling and transportation costs, such a move was hindered by separate permitting, regulatory, and political concerns for each of the towns in which the current sites are located. In addition, efforts by a West European nonferrous company to purchase the smelter were stalled due to the uncertainty of ownership in post-Communist Poland.
“It wasn’t clear who could speak for the company during negotiations—a government agency or a quasi-independent board,” Weiss explained.
Political and economic problems also short-circuited the establishment of a battery collection and recycling system in Romania, Weiss said. At present, the country is ambivalent about scrap batteries, especially regarding imports. “On the one hand, the country doesn’t wish to be a dumping ground for waste that other nations don’t want,” he noted, “but on the other hand, there’s a recognition that scrap can be a valuable resource and form the basis for profitable industries.”
Domestic battery recycling is also controversial. Exchanging old batteries for new was mandatory under the hated Ceausescu regime, overthrown in 1989, and thus there’s no interest in a new mandatory recycling law. But “extremely low” prices for scrap batteries offer little incentive for voluntary collection.
Old batteries are likely being hoarded, Weiss said. He noted a 1997 incident in which a Romanian battery producer suddenly offered a credit worth double the scrap market price of old batteries if customers turned in their old batteries when purchasing new ones. The credit attracted “substantial quantities of batteries,” he said.
In both Poland and Romania, Weiss found, the formerly planned economies didn’t encourage communication between manufacturers and their suppliers or customers—and many companies remain reluctant to do so today.
Like Romania, Egypt faces many environmental concerns, Weiss reported. For instance, the Egyptian battery collection system is managed almost entirely by peddlers and small dealers who manually chop the batteries and just dump the acid, leading to considerable pollution.
Likewise, Cairo’s air pollution is exacerbated by many small and unregulated lead smelters that operate in residential areas with only rudimentary dust collection systems. But efforts to relocate these smelters to an industrial site where greater pollution control can be enforced haven’t been easy.
One site chosen was unable to obtain all the necessary permits from various government agencies.
Companies at another site managed to get the required permits but then were threatened by machine gun-wielding locals (who argued that the government had sold the land without permission and so they now deserved a share of the proceeds), Weiss said.
The Illogic of Zinc
“People involved in the zinc industry have ample issues to worry about,” asserted Morton Schwarz, president of Trademet Inc. (Scarsdale, N.Y.).
As explanation, he pointed to LME zinc stocks of just 280,000 mt in mid-September—a seven-year low—plus a continuing withdrawal of LME stocks in Singapore, causing many analysts to fear a “repeat of 1997.” That was when a “significant backwardation” resulted from a rumored short covered by the Chinese, Schwarz explained.
So, with China expected to export as much as 450,000 mt of zinc this year, the “magnitude of [today’s] backwardation will depend in part upon overall business conditions throughout the world, which at the present time look somewhat favorable,” Schwarz said.
However, he also stressed that “it’s rare that zinc values react logically to market events.” During July’s strike at Kidd Creek—which represents some 2.2 percent of world zinc output—LME values rose roughly 7 percent, but then hardly reacted when the strike was settled in August.
Fears over Y2K are another wild card. Should businesses build up inventory in anticipation of supply problems early next year? Will smelting operations be disrupted by computer malfunctions?
Though Schwarz didn’t answer these questions, he did point to stories about the U.S. Treasury’s plan to mint additional coins in case people hoard money in anticipation of banking problems. “If the U.S. government is concerned about supply disruptions,” he asked, “shouldn’t we be equally worried?”
Predicting an end to the U.S. stock market boom by the fall of 2000, Schwarz challenged the current conventional wisdom of a strong zinc market next year. Instead, he sees a rally in LME zinc prices into early 2000, combined with a widening backwardation. The result will be an “inevitable correction, and we’ll have falling prices into the next millennium,” Schwarz said, adding that premiums—which had remained steady—will diminish as the backwardation widens.
On the application side, Bernard Potts, vice president of sales and marketing for Metropolitan Alloys Corp. (Detroit), presented a slide show of products made from zinc casting alloys. He highlighted items ranging from computer card racks to scientific equipment die castings to kitchen mixers that all include zinc castings, which in many cases replaced earlier products made from brass, bronze, or cast iron at considerable cost savings and with operational improvements. These include miniature applications—including one the size of the proverbial head of a pin—as well as one-piece castings that replace parts that had to be soldered together from multiple pieces, Potts noted.
Overall, more than 500 casters in North America cast some 500 million pounds of zinc alloys annually, he said.
Stainless Growth Lies in Automotive
The stainless sheet and strip market in North America is “steadily improving,” said Dennis McGlone, vice president-commercial for AK Steel (Pittsburgh), noting that consumption will rise about 1 percent in 1999 and again in 2000. Imports are expected to decline about 10 percent in 1999 and 6 percent in 2000, while U.S. producer shipments could increase 4.8 percent in 1999 and 3.3 percent in 2000. Taking all of this together, apparent consumption should register an annual growth rate of 3 percent, he forecast.
Stainless steel will find its growth opportunities in automotive, appliances, capital goods, and roofing and architectural applications, McGlone reported. Of these, the automotive market holds the largest potential. “With North American light truck production of over 8 million units per year, even if only a small percentage of trucks would use stainless wheels and bumpers, the increased demand would be significant,” he said.
In North America—which has traditionally trailed other regions of the world in its per capita consumption of stainless—the Specialty Steel Industry of North America (Washington, D.C.) launched market development activities in 1992 to boost the continent’s stainless usage, McGlone noted. Since then, per capita consumption has increased from 13 to 19 pounds as of 1998, with the target to boost that total to 25 pounds by 2003, he said.
The Russian Nickel Factor
For nickel-watchers who have been anxiously studying the heavy flow of nickel from Russia, James Hayes of Abacus Consultancy (Chelmsford, England) had these reassuring words: “We expect nickel supply from Russia to decline during the next two years.” Equally heartening: The supply of stainless scrap coming out of Russia will also decrease, he said.
On the primary side, Norilsk Nickel, Russia’s largest producer, could produce about 200,000 mt in 1999, which would be 10,000 mt—or 4.2 percent—less than its 1998 production, Hayes noted. Also, Norilsk has indicated that it plans to put more resources into its production of platinum-group metals, which could come at the expense of its nickel production, he said.
Stainless scrap exported from Russia to Europe ballooned from a few thousand metric tons in 1993 to nearly 350,000 mt in 1997, he reported. Most of this scrap, however, comes from the dismantling of plant equipment, which is decreasing. For the year, Russia’s exports of stainless scrap could be down 20,000 mt from last year’s total, Hayes said.
The effect of these declines on nickel’s price is uncertain, but there’s little doubt that Russian-origin primary and secondary nickel “will remain the single biggest influence on the nickel market,” Hayes said.
The Importance of Stainless Scrap
George Rainville, senior associate with Charles River Assocs. Inc. (Boston), concurred with Hayes’ assessment that stainless scrap exports from the C.I.S. and other Eastern European countries will decline significantly over the next five years.
This decline will occur for the main reason that current exports are from relatively easy-to-collect stockpiles of scrap. “As these stockpiles are reduced, the remaining true obsolete scrap will be more difficult to collect and process, thereby slowing the rate at which it’s generated,” Rainville said.
As stainless scrap from the C.I.S. and Eastern Europe dwindles, Western European stainless producers will make up for the shortfall through increased recovery of obsolete scrap and greater scrap imports from the United States, he said.
In the long run, Rainville asserted, obsolete scrap from the United States, Western Europe, and Japan will be exported to other regions as supplies grow to exceed demand, regardless of the supply from Russia and Eastern European countries.
Also, stainless scrap “will continue to be a very important raw material,” accounting for 46 to 50 percent of the melt mix depending on the stainless steel demand, he said. In that mix, the proportion of home scrap will decline and that of obsolete scrap will rise. In general, obsolete scrap will serve as a “baseload” scrap supply, with large annual variations in the supply of home and prompt scrap, Rainville said.
Oversupply for Cobalt?
Though the cobalt market is moving toward oversupply and, hence, a declining price trend, the bright side is that this could bring “price stability for the end-consumer, allowing new or extended use of cobalt,” said Mark Caffrey, president of Sogem USA Inc. (Raleigh, N.C.).
In 1999, the cobalt market is expected to be relatively balanced, with supply at about 32,800 mt and consumption around 30,500 mt, he noted. The current 32,800 mt of supply comes from 15,500 mt of nickel and platinum-group-metal production, 7,500 mt of copper production, 5,450 mt of secondary sources, 1,550 mt of cobalt-based production, and 2,800 mt from Defense Logistics Agency supplies.
In the coming years, the cobalt supply will grow, boosted by an estimated 11,000 mt of new Australian production and even larger increases elsewhere, Caffrey said. These supply increases are being driven by nickel, new technologies to extract nickel and copper, and the fact that there’s no longer a single dominant player in the market, he noted.
As supply increases, cobalt will see a downtrend in price with little possibility for self-correction since cobalt is a byproduct and no one is ready to accumulate stocks, Caffrey asserted. •
—Robert J. Garino, Robert L. Reid,and Si Wakesberg
In 1999, metals have crawled back from the abyss of 1998. And as corks pop to toast the new millennium, most metals have cause to celebrate brighter prospects ahead.