A Light at the End of the Nickel/Stainless Tunnel?

Si Wakesberg is New York bureau chief for Scrap Processing and Recycling.


The mood among the roughly 200 industry executives gathered in Pittsburgh in early October for Scrap Processing and Recycling's Nickel/Stainless Steel/Special Metal Roundtable, on a day when the price of nickel on the London Metal Exchange fell to $3.41 a pound, was hardly upbeat. Though the event's speakers spoke of improved markets and prices to come, the message many hear for the short term was "hang on."

The nub of the problem is facing many of the metals discussed at the roundtable is demand, speakers said. For example, in the stainless steel industry--a major consumer of nickel--indications are that demand has sloughed off, even in that bastion of activity, Japan. The mood on molybdenum also was bleak, with poor demand expected to stretch into 1992.

Meanwhile, chrome and cobalt--both produced primarily in countries that can be labeled "unstable"--were reported troubled by problems of supply. Cobalt, in particular, has been showing considerable volatility, keeping traders wondering whether production and shipment can be counted on.

This year, the Western World should see about 32,000 metric tons (mt) of excess nickel supply, with estimated consumption of 660,000 mt falling short of the 692,000 mt available to the Western economies, reported Thomas F. Moormann, executive vice president of Western Mining Corp. (Pittsburgh). The excess should be shortlived, however, because consumption should grow 2.5 to 4.0 percent per year for the balance of the 1990s, he predicted, noting this would require Western World supply to increase to 800,000 mt by the mid-1990s. The biggest unknown in the picture, said Moormann, "is the amount of Soviet nickel that will be sent to the West," which, he said, might even exceed his projection of 90,000 mt.

Several nickel producers have announced cutbacks, including Inco, which has closed some of its higher-cost Canadian Mines, and Falco, which has reduced its production in the Dominican Republic, said Moormann. Producers are generally operating well below capacity, he reported, noting North American companies are expected to generate only 188,000 mt out of an annual capacity of 214.000 mt; European refiners should put out 342,000 Mt, 33,000 mt short of capacity; African suppliers will generate only 68,000 mt tons, compared with capacity for 83,000 mt; and South American companies will produce 40,000 mt, compared to a 55,000-mt potential. Soviet production is "somewhat of an enigma," said Moormann, but he suggested 290,000 mt as a "viable" prediction.

Annual world mining capacity for nickel is now approximately 1.145 million mt and apparent production is about 978,000 mt, he said.

Current chrome prices--around 43 cents per pound at the time of the roundtable--are "not realistic,” said James W. Frye, vice president of operations for Macalloy Corp. (Charleston, S.C.), told roundtable attendees. If chrome followed the price trend set by nickel, he said, "it would now be 60 cents a pound."

Frye blamed weak ferrochrome prices on companies and governments that "continue to produce in a downward market and either build inventories or sell at depressed prices." Although production by such players does not represent a major share of the world market, he said, their actions result in "price deterioration" because some big producers "follow the price down in an attempt to hold then market share."

For example, he said, South African producers, which account for 60 to 70 percent of the world's ferrochrome, "are price followers, not price setters. "

Chrome prices, however, cannot stay where they are for long, said Frye. The major South African producers, facing an inflation rate of 15 to 18 percent, increased power costs, and sure-to-increase labor costs, will have to up their prices, he suggested, noting that one has already raised its price 5 cents a pound in Europe. Where will ferrochrome values settle? Frye predicted them "going quickly to the 50-to-55-cent-per-pound level" and said 60 to 65 cents a pound "is not farfetched."

An improved economy in 1992 and growing demand in Europe promise a brighter market outlook for chrome, said Frye, particularly in the face of "rebuilding" programs and new demands for stainless steel in the Soviet Union and former Eastern Bloc countries.

Political Problems Boost Cobalt Prices

Conditions for cobalt are "extremely volatile" because of political troubles in Zaire, the world's largest producer, said Derek J. Benham, senior vice president of primary metals for Keywell Corp. (Port Elizabeth, N.J.). A year ago, free-market cobalt prices were in the $13.25-to-$14.25-a-pound range and the official producer price was $8.40; today, free-market prices have soared to $19 a pound and the official price to $11, he reported.

Gecamines, the principal producer in Zaire, had "boldly" predicted its production level for 1991 would reach 13,600 mt, said Benham, adding, "how they expected to eke out 35 percent more metal than in 1990 is not clear." With the latest official 1991 production figure at 12,000 mt, such a jump is "by no means" what is happening in that country right now, he emphasized.

The Western World's cobalt output in 1990 was 20,753 mt and sales totaled 23,500 mt, reported Benham. Production figures for 1991 are expected to reach 21,600 mt and consumption will likely be slightly below last year's, he said, resulting in a "small excess" of supply over demand. Nevertheless, even one week's loss of production--which he estimated at 200 mt--could throw the supply/demand balance out of whack, and a two-week interruption could make that "small excess" vanish, said Benham. In that case, "one would expect to see high free-market prices as consumers are forced to cover missed shipments," he said.

Benham noted than one scenario suggested for Zaire anticipates a market loss of about 10,000 mt of cobalt, which would result in "a rampant free market, as buyers requiring Zairian-quality material for specially approved alloys and applications would be forced to pay whatever price necessary to secure material. "Less-sensitive uses would be filled by lower-grade material from Zambian, Soviet, or other sources, driving up those prices, according to the scenario.

Another uncertain issue seldom factored into market forecasts, noted Benham, is the potential affect the AIDS epidemic in Central Africa will have on mineral production.

Planning cobalt purchases for 1992 will be a "hair-raising game," concluded Benham, noting that the price level will be immaterial if there's no certainty that the metal will be available.

On the flip side, molybdenum is in its third straight year of oversupply, according to George F. Nagy, general manager of North American sales for Climax Molybdenum Co. (Norwalk, Conn.), with stocks having risen by nearly 40 million pounds during the period. In 1990, demand softened slightly, he said, "and it is expected to fall more sharply this year," led by a decline in exports to Eastern Europe. In 1991 alone, 10 million pounds are expected to be built in to inventories, with moly supply reaching 198 million pounds compared with demand for 188 million, said Nagy. Though Japanese demand is up about 6 percent, he said, drops in Western European and U.S. demand of 7 percent and 4 percent, respectively, should push worldwide demand down about 5 million pounds for 1991.

Prices have dropped along with demand. The Metals Week moly dealer oxide price fell from more than $4 a pound in early 1988 to about $2.25 in October 1991--the lowest price in more than 15 years, noted Nagy.

Despite the soft market, Nagy suggested “more positive than negative" signs lie ahead, with industry executives expecting demand to be up in 1992. There may be some additional weakening, however, before the turnaround, he warned. "Historically, weak market conditions slowly bring about the rationalization of high-cost primary supply, " said Nagy, noting that some cutbacks and shutdowns have already taken place. Also, because "more than 50 percent of the moly supply is generated at copper mines, the price of copper will continue to be a factor in the moly market," he added.

Nagy predicted 1992 will see "supply and demand realigning and the market gradually improving as the inventory buildup of recent years begins to be dismantled."

Though the stainless steel scrap market appears to be lagging, with prices down from their previous highs and processors grumbling about the slow flow of scrap, "by the mid-1990s, demand for stainless steel scrap will outstrip supply," predicted Sam Waldman, president of Southeastern Stainless & Alloys Inc. (Charlotte, N.C.). He also suggested that today's low inventories and weak consumption create "a somewhat balanced supply/demand situation."

Most stainless melters worldwide are running at 60 to 80 percent of capacity and depleting their inventories, said Waldman. Korea, however, which recently emerged “as a major consumer of bulk stainless scrap," is going strong and plans to add an additional 50,000 to 60,000 tons of capacity in the 1990s, he noted.

The Korean appetite for scrap is part of a change in the direction of U.S. exports, according to Waldman, who pointed out that a few years ago, 55 percent of total U.S. stainless steel scrap shipped abroad went to Europe. Now, he said, "less than 10 percent goes to Europe, with Asia consuming the majority of the balance." Korea alone captures more than 50 percent of U.S. scrap exports, he noted. Another major potential customer is the Eastern Bloc, but it may take a while for this to happen, said Waldman.

Meanwhile, stainless steel production at U.S. mills "will be back to 90 to 95 percent of capacity by late winter, " predicted Waldman, noting that inventories of finished goods are low and improved interest rates should spur the economy. If so, he suggested, "any burst of volume or price improvement will be maintained by structural improvement in the order books, possibly carrying through the second half of 1992.”  •

Speakers at the recent Nickel/Stainless Steel/Special Metal Roundtable described serious supply and demand dilemmas, but most claimed to see better markets on the horizon.