January/February 1989
Markets for these metals have
lived through ups and downs in inventories, production rates, capital
spending, and international demand. But industry experts generally foresee
stability in 1989 for nickel, stainless steel, ferrochrome, molybdenum,
and titanium.
By
Si Wakesberg
Si
Wakesberg is a New York City-based consultant to the Institute of Scrap
Recycling Industries.
Opinions
clashed at the Institute of Scrap Recycling Industries' (ISRI) recent
Nickel/Stainless Steel/ Special Metals Roundtable as nickel and chrome
spokesmen recounted their industries' uptrend in 1988 and a stainless
steel official warned that continued high prices present a danger in loss
of markets to competitive materials. Yet despite some opposing viewpoints,
the six speakers at the Pittsburgh meeting told an audience of more than
250 industry members that nickel, stainless steel, ferrochrome,
molybdenum, and titanium had done very well in 1988 and that 1989 should
bring good business and a more stable market situation. Arnold I. Plant,
Samuel G. Keywell Company, Baltimore, Maryland, and chairman of ReMA's
Stainless and Alloys Committee, moderated the roundtable, which attracted
nickel producers, stainless officials, ferroalloy merchants, steel mill
representatives, and scrap processors.
Nickel
Nervousness Should Subside
The
nervousness and confusion that prevailed in the nickel market during the
first nine months of 1988 will continue, though to a lesser degree, but
1989 may see greater stability for nickel, said John E Gillies, vice
president-marketing and sales, Falconbridge, Ltd., Toronto, Ontario. The
reason for the continued nervousness, he pointed out, is the low inventory
level and the question of whether the tremendous growth in nickel
consumption and other metals can be sustained.
Gillies
said the nickel market is pretty much in balance statistically, but he
indicated that labor problems and plant maintenance problems were adding
to the market nervousness. Russian nickel shipments to the West are
probably in the neighborhood of 70,000 to 80,000 metric tons (mt), he
said, not 50,000 to 60,000 mt, as was assumed. Because of stepped-up
demand and higher prices, new and former producers are again being looked
at; Gillies said this could add about 70,000 to 80,000 mt to the supply.
If there's a market downturn, he noted, this could be a disruptive factor;
and he asked: "Will the nickel producers remember the past?" He
said that London Metal Exchange (LME) backwardation "may be with us
for some time, as long as inventory levels are low, and producers may face
mishaps." Gillies said business for miners has been excellent, and
even with the expected leveling-off of prices in 1989, he anticipates good
business for all sectors of the nickel market.
How
the LME Affects Nickel
LME
price developments in nickel have been mirrored by transaction prices
elsewhere in the industry, which shows the impact that the London Metal
Exchange has on not only nickel but other world metal markets, said Mo
Ahmadzadeh, president of Rudolf Wolff & Company, Inc., New York City.
Ahmadzadeh pointed out that the LME is a forward market and that the
majority of business is transacted for future delivery. Until 1987, when a
Singapore warehouse was registered, "the only deliverable locations
were European," he said. "This has resulted in Soviet metal
comprising the bulk of LME stock, as this has been the most freely
available metal in Europe." The restriction on quality, he said,
excludes all Class 11 material, together with steelmaking powders, salts,
and Class I chemical-grade oxides. Ahmadzadeh noted that LME stocks, which
have been above 20,000 mt, are currently less than 2,000 mt.
The
LME has always had merchant involvement, Ahmadzadeh continued, but since
1982 producers have played an increasing role. These producers have
attracted a larger number of consumers into the LME. As long as stocks
remain low, Ahmadzadeh said, "prices can only be expected to decline
gradually over the coming weeks to reflect the improving supply picture.
... There is a widespread expectation that nickel prices will drop over
the next 12 months."
Stainless:
Competition Heats Up
The
stainless steel industry is in danger of losing markets to competing
materials as a result of soaring prices for ferrochrome and nickel,
cautioned David G. Vietmeier, vice president--purchasing, Allegheny Ludlum
Corporation, Pittsburgh, Pennsylvania. Vietmeier conceded that before
mid-1987, nickel producers faced low prices that were not profitable for
their industry, but he insisted that the nickel price rise in 1988 was
"ludicrous" and called the ferrochrome price escalation
"intolerable." He said stainless producers have had to raise
their own prices and add surcharges, which has made their products less
competitive with other materials. In one of a series of charts, he showed
that the price of Type 304 stainless sheet steel had risen from 93.00
cents a pound to $1.47 a pound from December 1987 to July 1988--an
increase of 68 percent.
To
illustrate that nickel and chrome price rises were "overbaked,"
Vietmeier pointed out that the alloy scrap price, which normally moves up
or down in concert with virgin nickel and chrome prices, did not react as
quickly to the change in ferrochrome and nickel prices in 1988. "The
increase in virgin nickel from January to September was approximately 135
percent, while that of nickel in scrap was a mere 80 percent. When is the
last time the price of scrap was 55 percentage points below the price of
the virgin ferroalloy market?" Vietmeier sees the stainless business
softening somewhat but remains "very bullish about the stainless
steel industry's prospects for potential growth."
Ferrochrome
Price Uptrend
From
mid-1987 until late 1988 prices of chrome moved up from previous
uneconomic levels. During this period prices rose from the
low-40-cent-a-pound level to around $1.05 a pound, said David J. Myara,
assistant to the president at Huxley Barter Corporation, New York City. At
over $1.00, prices appear to have flattened out and may stay that way
until the second quarter of 1989, he predicted. He indicated that this
isn't so much a matter of supply as it is a reflection of the heavy
stainless steel production rate. If stainless output remains high, he
said, chrome prices will remain strong. Otherwise, "prices will have
to come down, but not to the levels of early 1987."
Most
current U.S. inventory is about one month's consumption, Myara said, and
since lower prices are expected no one is buying large quantities of
ferrochrome. He thinks a slight increase in stainless production could
push up prices for spot deliveries.
Lack
of long-term commitments in the U.S. has made South African chrome more
readily available to consumers in Europe and Japan, Myara said.
"World demand for chrome recently ran approximately 10 percent above
the world capacity of 2.5 million metric tons," he indicated. Total
U.S. consumption of ferrochrome and charge chrome in 1987 came to 354,000
mt and the average for the first half of 1988 was estimated at 176,000 mt.
Approximately 87 percent of this consumption went into the production of
stainless.
Will
Moly Market Maintain Balance?
Things
have improved for molybdenum: "A sense of balance has returned to the
market after years of volatility," declared J. Barry Hartland, vice
president--molybdenum sales, Climax Molybdenum Company, Amax Inc.,
Greenwich, Connecticut. The market began to pick up strength in the latter
half of 1987 and gained additional momentum over the first three quarters
of 1988, he said. The reason: "strong capital spending programs in
the Western economies, which have spurred steel production, which, in
turn, has driven up molybdenum demand." Alloy and stainless steel
production, Hartland emphasized, were the driving forces behind the moly
demand. It approximated 174 million pounds in 1987 but will be closer to
180 million pounds in 1988.
Moly
stocks, which at the end of 1986 had grown to nearly 120 million pounds,
have been cut back. "Climax estimates that inventories fell by about
6 million pounds in 1987," Hartland explained. "This process
accelerated rapidly over the first quarter of 1988 due to strong demand,
operating problems at several copper mines, lower Chinese exports, and the
fact that prime producers were operating at low output levels." He
said his firm predicted that inventories would be down at least 10 million
pounds in 1988.
Moly's
future demand level depends on the rate of capital goods spending, the oil
price trend, and alloying-element substitution, Hartland said. "We
expect 1989 molybdenum demand to approximate 1988 levels with the
possibility of some moderation in the latter part of the year."
The
Titanium Industry Recovers
In
a series of vivid slides that dramatized the upturn of the titanium
industry, John Odle, vice president--commercial, RMI Company, Niles, Ohio,
demonstrated that even though the industry's growth in 1988 exceeded
original forecasts and may be 10 percent higher than in 1987, "the
upturn in shipments does not match the extraordinary peak of the last
cycle eight years ago." In 1980 the industry shipped a record 54
million pounds.
Driving
the market higher, Odle pointed out, were the boom in commercial aircraft,
the changing dollar (which made it more difficult for the Japanese to
compete), strengthened exports, and reduced availability of titanium
scrap. Odle said the scrap has fallen into short supply "due to a
peak stainless and specialty steel market, a cutback by the Russians on
their traditional 1015 million pounds of annual supply, and the increased
use of scrap in new melting technologies."
Odle sees no reason for good business to stop. "On balance, we have a strong business base," he said, "and one that appears to have sustained growth potential over the next few years. We also have an industry that will be operating at profit in 1988 and, if the dollar remains in its current position, that has an opportunity to be profitable in 1989 and 1990."
Markets for these metals have lived through ups and downs in inventories, production rates, capital spending, and international demand. But industry experts generally foresee stability in 1989 for nickel, stainless steel, ferrochrome, molybdenum, and titanium.