November/December 1992
A recent roundtable gave executives a glimpse into the still-tentative trends in the nickel, stainless steel, and special metals markets, many of which have been marked by changing worldwide metal movement.
BY SI WAKESBERG
Si Wakesberg is New York bureau chief for Scrap Processing and Recycling.
Like an unwelcome visitor who refuses to leave, the problem of massive exports of metal from the former republics of the Soviet Union continued to preoccupy metal executives at Scrap Processing and Recycling's Nickel/Stainless Steel/Special Metals Roundtable, held in Pittsburgh in September. Of course, the speakers covered a range of issues affecting the nickel, stainless steel, cobalt, and superalloy markets, but the persistent disruption of metal supplies originating from the former republics was a prominent roundtable topic.
This flood of metal includes "not only 'orthodox' scrap, but also 'artificial' scrap," said Keith O'Brien, director of market research for Inco Ltd. (Toronto). "Semifinished products like ingot, billet, plates, and tubes," he explained, "are exported and sold as sources of cheap nickel units." The result has been a pile-up of metal in Western Europe, particularly Germany, which has reportedly skewed the usual flow of U.S. and U.K. scrap.
The abundance of secondary material has also encouraged some stainless steel producers to reduce their purchases of primary nickel units, O'Brien said. Germany, for example, used approximately 4-1/2 percent primary nickel in its stainless steel from 1989 to 1991, whereas now it uses only 3 percent, he reported. Meanwhile, that country imported about 3,900 metric tons (mt) of prime nickel per month in 1991, but it has imported an average of only 3,043 mt per month in 1992—a 22-percent drop.
What this means, O'Brien contended, is that Germany has upped its use of secondary nickel units from the former Soviet republics, while consuming "markedly less primary nickel per ton of stainless steel." As proof, he noted that Germany has imported 386 percent more pure nickel scrap in 1992 than it did the previous year, and it went from being a net exporter of nickel alloy scrap in 1991 to a "substantial" net importer in 1992. Taken together, O'Brien said, these increases "probably represent more than 500 mt a month of nickel units in 1992 compared to 1991, essentially balancing the drop in primary nickel imports." These import levels, while notable, are likely to be a short-term phenomenon, he asserted.
Looking at the larger picture, O'Brien indicated that the nickel market is "in good long-term shape, with supply and demand maintaining a reasonable balance." The buildup of nickel inventories in the past few years should not be overlooked, however, he advised. "While an inventory of 140,000 to 150,000 mt is not excessive," O'Brien remarked, "its real significance is in the implications for 1993." If stocks grow in 1993 and beyond, he said, "the warning bells should be sounding for nickel producers" and they may have to consider trimming output.
Those concerns aside, O'Brien said he does not foresee long-term overcapacity in the industry, which means that "a ton of nickel not sold today will sell at a better profit in the future."
Seeking Stainless Stability
Turning to the outlook for stainless steel, Robert Y. Ball, marketing director of specialty and stainless strip products for Allegheny Ludlum Steel (Pittsburgh), forecast mostly good news, projecting an annual growth rate of 4 to 6 percent in the 1990s. Despite the economic recession that has highlighted the decade so far, he noted, domestic consumption of stainless steel sheet and strip has dropped by less than 7 percent from its peak in 1988. This relative stability "proves the continued strength of our markets and the continued development of new market applications," Ball asserted.
As further evidence of the positive outlook for stainless, he pointed out that, in comparison with other materials, stainless steel has become "increasingly price competitive." Since 1967, for instance, the indexes of finished steel products, aluminum mill shapes, and industrial commodities have each increased more than 260 percent. Meanwhile, the price of 304 stainless—the most popular grade—increased only half that much in the same period, giving stainless a favorable price spread, he said.
On another price topic, however, Ball was less upbeat, stating that nickel price volatility is a threat to stainless producers. The projected growth rate for stainless "could be even better if we have reasonable and less-volatile nickel prices," he said, warning that "a nickel-driven price increase could affect material selection." O'Brien pointed out, however, that nickel prices have been no more volatile than the prices of ferrochrome, ferrosilicon, ferromanganese, and titanium.
The Shifting Scrap Scene
Looking at the stainless picture from a scrap exporter's view, Thomas S. Netzer, a principal of Nicroloy Co. Inc. (Pittsburgh), predicted a "boom" in stainless scrap exports this fall thanks to the "incredibly cheap dollar." Since nickel is traded in dollars on the London Metal Exchange (London), "a cheaper dollar means cheaper nickel and, thus, cheaper U.S. scrap." When U.S. scrap is a bargain, foreign consumers become aggressive and buy spot U.S. scrap for future use, he said.
This export upswing would likely be driven by the Far East, which absorbed 37 percent of U.S. stainless scrap in l988 and 6l percent in l989, Netzer noted. Korea has dominated the region's purchases, and is now the single largest consumer of U.S. stainless scrap exports, he reported. "In 1988," he said, " Korea imported only 9,000 mt ofU.S. scrap, but by l991 that had increased to 94,000 mt—or 4l percent of all U.S. stainless scrap exports—surpassing both Japan and Western Europe ."
Outlining the disposition of U.S. stainless scrap in recent years (see table on page XXX), Netzer emphasized the dramatic shift in the flow of U.S. stainless scrap. For example, he noted, Europe absorbed 48 percent of all U.S. stainless scrap in 1988, but one year later that level had fallen to 24 percent.
While Netzer predicted that U.S. shipments of stainless scrap to Korea will diminish eventually, he said that 1992 export figures "are almost equal to 1991, exhibiting the continued demand for U.S. stainless scrap even in a sluggish market."
Cobalt's Questionable Direction
John Smith, director of sales and marketing for Falconbridge U.S. Inc. (Pittsburgh), analyzed the quickly changing cobalt market at the roundtable, estimating that total global output in 1993 would reach 22,400 mt, up marginally from 1992. This, he said, would bring the 1992-1993 production average down about 11 percent from the 1990-1991 average.
Regarding demand, cobalt consumption "decreased sharply in Europe, North America, and Japan in 1992," while China showed an increase, he said, adding that he expects next year to bring "a moderate increase in the three main consuming areas based on general renewed economic growth."
Nevertheless, cobalt stocks will increase by about 2,000 mt in 1992, Smith predicted, citing "the massive increase in exports from the former Soviet Republics to the West—"from virtually nothing in 1990 to an estimated 5,000 mt this year." Since some of these stocks apparently come from the liquidation of stockpiles in the republics, he observed, "we expect exports to the West to decline to about 3,000 mt in 1993." This, he noted, would give a balanced supply/demand picture "if it were not for the possible Defense Logistics Agency [DLA] sales," which he estimated at around 1,400 mt.
Cobalt's direction in 1993, Smith said, will be determined by the answers to the following questions: What can Zaire produce from its mines? Will the drought in Zambiaaffect production? Can the former republics sustain their current levels of production and exports? Will the Chinese continue buying large volumes? What will the DLA sell and how will it sell it? And, what growth will there be in the world's major economies?
Superalloys Face Competitive Concerns
Superalloy producers face many challenges today, and greater productivity is crucial if they are to meet these challenges, said James A. Fink, president of the Cytemp Specialty Steel Division of Armco Inc. (Titusville, Pa.). "The number of man-hours spent in producing our product lines has to be more competitive," he asserted, noting that producers must also "narrow the bands of variability" in order to achieve quality production. Other competitive challenges include reducing inventories and forming more extensive long-term agreements, he suggested.
Fink also warned that "substitute materials in the future are going to be a threat to high-temperature superalloy producers. Through technology, productivity, research and development, we must improve the specifications of these products along with the cost to produce."
In the superalloy marketplace, Fink predicted little change for the remainder of 1992, with 1993 shaping up to be a duplicate of this year. "In fact," he said, "one engine producer is saying that 1993 could be somewhat weaker than 1992.
1991 U.S. Stainless Steel Scrap Demand
(in metric tons)
Domestic Consumption
(including imports) *524,000
Exports
South Korea 94,000
Japan 68,000
Western Europe 38,000
Others 32,000
* Excludes home scrap.
Sources: Heinz H. Pariser & Associates and U.S. Bureau of Mines.
A recent roundtable gave executives a glimpse into the still-tentative trends in the nickel, stainless steel, and special metals markets, many of which have been marked by changing worldwide metal movement.