January/February 1988
Powerful speakers and a packed house marked ISRI’s post-stock-market-crash roundtable.
By Si Wakesberg
Si Wakesberg is a New York City-based consultant to the Institute of Scrap Recycling Industries.
On October 27th, one week after the cataclysmic crash of the New York stock market, more than 250 executives of the ferroalloy industry--producers, merchants, brokers, scrap processors, and consumers--gathered at the Airport Holiday Inn in Pittsburgh to participate in the annual Nickel/Stainless/Special Metals Roundtable, sponsored by the Institute of Scrap Recycling Industries. The roundtable had one of the largest attendances in its 12-year history.
The weather in which the roundtable was held might well have been described by meteorologists as "a mixture of sun and clouds," the metals scene (particularly for nickel and stainless scrap) being very sunny, with a scattering of clouds brought on by the Wall Street disaster of the previous week and the reverberations already felt in the economy. On the day of the meeting, industry members told of "mill buying of stainless 18-8 scrap at Pittsburgh at around $700 a ton," against a background of a London Metal Exchange (LME) price that had come down a bit, but was still at a level of $2.65 per pound. Scrap specialists said there had been significant improvement in high-temperature alloys.
The sunny atmosphere also was noted in reports by nickel and stainless producers. One mill report said that "despite escalating raw material costs, sales and earnings in the seasonally slower summer quarter were better than anticipated." A nickel producer's statement indicated that "the first three quarters of 1987 showed the strongest nickel and copper markets in five years." In special metals, market strength improved as major producers raised prices for tool steel, and titanium producers boosted quotations for aircraft titanium sheet and plate.
Stainless and Alloys Committee Co-Chairman William Thiede, president of Powmet, Inc., Rockford, Illinois, opened the meeting by saying 1987 had been "a remarkable year for nickel, stainless scrap, and most of the special metals. Coming out of a long dry Spell, we have found ourselves in fast-moving and challenging markets. Some, of us are asking, Is this for real? Will the economy be able to sustain the strength of the markets?"
Chairing the second portion of the meeting, Joseph R. Jiampietro, Utica Alloys, Utica, New York, emphasized that the roundtable always has been a "major meeting of the industry." He expressed hope that under the newly merged [SRI, the roundtables "will continue to be first class." Jiampietro co-chaired the meeting in place of previously scheduled Barry Hunter, of The Samuel G. Keywell Co., Elizabeth, New Jersey, a co-chairman of the Stainless and Alloys Committee, who was in Zurich at the Bureau International de la Recuperation (BIR) meeting.
There was no doubt that the stock market decline and its ripple effects on the commodities markets had a sober impact on attendees of the meeting. Industry members did point out that except for nickel, which is traded on LME, the other special metals "are not directly affected by the sharp LME and COMEX [Commodity Exchange] swings."
But they admitted that if nickel prices fell "too sharply" in London, it might have an effect on other metals in the ferroalloy business.
The spotlight, however, focused on the economy. Some speakers had inserted-into their talks cautionary warnings about a possible weaker economy--due to the stock market crash--during the second quarter of 1988. They saw clouds on the horizon in the form of declining auto sales, lower housing starts resulting from rising interest rates, and a general feeling of distrust among U.S. consumers.
Yet, the overall tone at the roundtable was one of optimism. Speaker after speaker pointed to good demand, insufficient supplies, low inventories, and pressure for scrap. It all added up, as one speaker noted, that if one looks at the market fundamentals (without specific reference to the stock market's fall), one might "expect the LME cash price for nickel to average $2.70 next year and be rising steadily over the year."
Nickel in 1988
Demand will be up for nickel in 1988, around 2 percent, following the 6 percent increase in 1987, bringing prime consumption to 611,000 metric tons (mt) next year, according to analyst Robert H. Lesemann, president of CRU Consultants, Inc., New York City. The big question, Lesemann said, is whether "enough nickel can be produced to meet this level of demand." The speaker implied that the tightness in nickel at the time of the roundtable was "due, in no small degree, to serious miscalculations on the part of producers." He indicated that their cutbacks and summer shutdowns (at a time when Russian shipments were being reduced also) resulted in a sharp inventory drop and in a situation in which "production was not able to keep up with demand." He noted that "the stainless steel producers themselves failed to appreciate how strong demand would be."
Lesemann said that the nickel deficit in the third quarter was "an incredible 23,000 mt, reflecting the ill-advised summer shutdowns." He added that "a modest fourth-quarter deficit should bring year-end stocks down to 104,000 mt. That's the equivalent of only 60 days worth of consumption." And he emphasized that "at this level of stocks, there already may be problems getting nickel to consumers who need it."
"Scrap supplies remain tight," Lesemann pointed out, "despite the run-up in prices. We are projecting that, as prices continue to rise, there will be some increase in scrap availability [in 1988], but not a lot."
Touching on the stock market crash, Lesemann said that "a deterioration of consumer confidence would quickly show up in such areas as home sales and car sales ... a ripple effect would hit the whole economy ... no one will want to be caught holding nickel at these prices. Manufacturers will be watching their forward order books very closely so as to prevent accumulating costly inventories."
Stainless Market and Economy Concerns
Echoing the thoughts inspired by the stock market crash, Morton Plant, president of The Samuel G. Keywell Co., Baltimore, Maryland, wondered whether even a "bullish" market, such as the one for stainless steel scrap, wouldn't be affected. "Obviously, reduced spending on the consumer front will result in less demand for housing, automobiles, and other items, which will cause a slow-up in demand for stainless steel products," he said. "Will defense spending stay at a high level," he asked, "thus creating a demand for stainless and high-temperature alloys, or will the deficit finally be reduced starting with cutbacks in defense spending?"
Focusing on the "bullish" elements of the market, Plant pointed out, "Nickel seems strong and readily available. Chrome is certainly in a posture where it has no weak side. There seems to be no end in sight for the carbon market. Add to this the export demand coming from both the East and West and the established fact that there are no appreciable inventories in the U.S., and we have a situation where the market can only go up." Yet, Plant warned, the stock market crash may indicate otherwise. He cautioned metalmen "to take every step necessary to be able to deal with events as they are happening to us."
Examining the export market, Plant said that while export figures for 1987 showed the U.S. running behind 1986, "I suspect that when all the figures are in at the end of [1987], we shall be close to the record 1985 total of 180,000 short tons being exported."
He estimated that with specialty producers operating "at near capacity, the scrap industry is supplying about 40 percent of what is melted." He added, "I see a continued heavy demand for stainless steel scrap no matter what the price."
Cobalt Pricing
Since the major African producers announced a $7-per-pound producer price for cobalt, " … the market has settled in an acceptable range," achieving price stability, said Edward Kielty, vice president of Afrimet Indussa, New York City. But in order to accomplish such "stability," the producers must be willing to adjust production to market levels, or "in a weak market, to forego sales in order to maintain this price concept." He noted that "Gecamines has tried to do this by implementing long-term contractual agreements."
Kielty pointed out that Zaire produces 11,000 mt, Norway/Canada, 4,000 mt, and Zambia, 3,600 mt.
Kielty said that "real consumption growth of cobalt is probably in the range of 3 to 4 percent per annum." He said that while cobalt usage has experienced a visible recovery from the downslides in 1982 to 1983, consumption growth in the future does not appear to be significant. "No new major consumption sectors are on the horizon," he said. The most visible new market, he added, is for magnetic tapes.
Looking ahead, Kielty concluded from available statistics as well as the actions of producers, that "stability will continue to prevail in 1988, and we will see no major deviation from the current pricing policy by the major producers."
Improved Price for Charge Chrome
An improvement in the charge chrome price in 1987, after a price decline, in the second half of 1986, gave the ferrochrome market a lift in 1987, according to Grant Thomas, vice president of Samancor Metals & Minerals, Coraopolis, Pennsylvania. He said he hoped that the price had "stabilized" and that any other price changes would be minor ones.
Examining the supply side, Thomas noted that worldwide stainless steel output had been running at an accelerated pace. New production of high carbon ferrochrome, expected in 1987, in countries outside of South Africa, did not develop as expected. There was, he added, a gradual, but significant, production cut in Japan in the past 2 to 3 years. This, he emphasized, had put added stress on demand in all producing countries.
Thomas explained that "with higher nickel prices, demand for scrap increases and demand for ferrochrome should fall off. … When worldwide stainless producers do achieve higher scrap percentages in their charge, chrome producers will no doubt face either absorbing higher inventories, cutting production, or reducing price."
Molybdenum’s Upturn
While molybdenum ("moly") has not been a star among the metal performers, its outlook for 1988 was "promising, although not brilliant," according to Richard S. DeCesare, vice president, metals marketing, Cyprus Metals Co., Englewood, Colorado. DeCesare said Japanese cutbacks resulting from the higher yen reduced their purchases of moly, which, with Chinese "aggressive selling" of concentrates and ferromoly in Europe "at discounted prices," soon developed a bearish scenario. As a result, the moly price began to slip. By April "merchants and certain producers were offering drummed oxide in Europe and Japan at around $3.05 per pound. During the next two weeks these prices dropped further by 5 to 8 cents per pound.
A continuing price drop occurred through mid-July. Quotations by merchants were then at the $2.60 level and going down. Suddenly, a reversal took place, DeCesare said. Japanese buying began to pick up, European and U.S. consumption continued at a good pace. Supplies were beginning to vanish from the merchant market and prices picked up rapidly.
DeCesare said that "merchant prices appeared, at roundtable time, rather steady at around $2.90 to $2.95 for drums in Europe and $3.15 to $3.20 for cans in the U.S." DeCesare said he expected for the rest of 1987 a modest downturn in stocks, a rise in European consumption and, possibly, a continuation of Japanese buying in 1988. He estimated the 1988 consumption level at around 163 to 164 million pounds.
Americanization of Titanium
The transformation, or as the speaker called it, the "Americanization" of titanium and titanium recycling, was illustrated by Michael Suisman, chairman of Suisman Titanium Corp., Hartford, Connecticut. Japan had, until times recent to the roundtable, dominated the market with its heavy shipments of titanium sponge; however, the weaker dollar leading to a stronger yen, plus a series of anti-dumping cases had, according to Suisman, "for all practical purposes, preempted Japanese sponge from these shores. How effective these actions have been was illustrated last May when not one pound of sponge from Japan was landed in the United States from a nation which formerly had supplied millions of pounds."
Production of alloyed ingot is predominantly "American," Suisman said, since the aerospace industry accounts "for a minimum of 75 percent of all titanium metal consumption." He said there were differing opinions as to future growth of the aerospace industry (and, with it, titanium) in the next five years, "Boeing has said that if the price of titanium can be cut relative to other metals, titanium's share of [Boeing's] airliners could jump from 6 percent to 12 percent."
What does all this mean for scrap? Suisman asked. In 1960, as little as 20 percent of scrap was used to produce titanium ingot, and about 20 percent of that was home scrap. By the mid-1970s the percentage had risen to 32 to 38 percent. In the past 18 months, Suisman said, "more than 50 percent of titanium ingot has been composed of scrap, both home and open market. We can foresee the recycled portion growing to 60 percent over the next few years with perhaps a practical limit of two-thirds scrap to one-third virgin.
Suisman spotlighted the role of titanium turnings as the chief "Americanization of titanium recycling." He said that titanium turning exports had been "in the millions of pounds to the U.K. and the continent," and estimated that over 9.5 million pounds were shipped to Europe in 1986. Suisman stressed that for recycling to achieve maximum growth, "the quality of the turnings must be good," and he pointed out that "ferrotitanium and other sacrificial uses today still offer viable markets for titanium turnings, while U.S. aerospace-destined turnings can command only a small premium over ferrotitanium."
He noted three favorable factors that portend the future Americanization of titanium: (1) The end product of titanium metal, he said, has a much higher selling price than that of ferrotitanium; (2) Titanium metal end use will grow over the next 20 years and will need greater quantities of raw material; and (3) The cost-cutting advantages of titanium recycling will make themselves felt with titanium ingot maker cost controllers.
Tungsten Industry Cautiously Optimistic
The Western world tungsten industry (and that includes the U.S. tungsten industry) has undergone "one of the most chaotic periods in history" during the past five to seven years, according to Donald Bernans, vice president, administration, Teledyne Firth Sterling, LaVergne, Tennessee. U.S. consumption of tungsten, which was 21 million pounds in 1981, fell to 12 million pounds in 1983, and in 1986 rebounded to 16 million pounds, Bernans said. He estimated that 1987 consumption would be approximately 14 million pounds and that 1988 would see "a slight increase over that."
Because of low demand and depressed prices, "all tungsten mining in the U.S., in fact in all of North America, has ceased." For 1987, some improvement was in the air and Bernans indicated that the industry was "cautiously optimistic."
Bernans pointed out that approximately 65 percent of all U.S. tungsten consumption goes into tungsten carbide and approximately 20 percent into tungsten heavy metal alloy. A downturn in demand for tungsten carbide was caused by many factors including "increased use of recycled materials, especially zinc reclaimed materials, which supply about 30 percent of the tungsten carbide requirement."
Bernans discussed the importation of tungsten from the People's Republic of China, which, he said, had been particularly "devastating" to the domestic industry. He said that as a result of actions taken by the Refractory Metals Association before the International Trade Commission, China will be "restricted to 1.7 million pounds of contained tungsten in APT and tungstic acid per year for the next four years." Prior to that time, Bernans said, China "had captured over 30 percent of the U.S. market."
Powerful speakers and a packed house marked ReMA's post-stock-market-crash roundtable.