January/February 1991
Economic concerns weighed on executives at the recent Nickel/Stainless Roundtable, but some glimmers of future potential shined through.
By Si Wakesberg
Si Wakesberg is a New York City-based consultant to the Institute of Scrap Recycling Industries (Washington, D.C.).
Doubts and uncertainties about near-term trends in nickel, stainless steel, and related metal markets overshadowed reports of potential future demand at Scrap Processing and Recycling's Nickel/Stainless Steel/Special Metals Roundtable, held in Pittsburgh in October. Speaker after speaker emphasized economic uncertainty looming in 1991. The Middle East crisis, the then-stalemated budget problem, upcoming labor contracts, the credit crunch--all were viewed as adding to the difficulties facing the nickel-related metals industries. One speaker put it this way, "Consensus for a recession seems to be hardening from not 'whether' but 'how long and deep."'
All speakers, however, foresaw longer-term optimism. "In spite of indications of economic recession in the Western World, demand for cobalt is expected to grow by 2 to 3 percent per annum over the next few years," a cobalt executive stated. A molybdenum speaker said, "Especially in the newly industrialized areas of the world, moly demand is increasing rapidly as more specialty steel is produced," and he added that "this trend can only be expected to increase in the next decade." And a stainless executive indicated, "While we saw overall demand growth of about 2.6 percent in the 1970s and 1980s, I think the average growth will be more like 4 percent in the 1990s."
Still, among the more than 200 industry members who attended the roundtable--including producers, consumers, merchants, and scrap processors--the doubts outweighed the optimism. "What worries me is what will happen in 1991, not in 1995," said one attendee. And while many agreed that 1990 had been a generally good year, most were looking ahead to a more somber 1991.
1991 Nickel Surplus Predicted
Looking at the 1990 supply-demand situation for nickel, James H. Moore, president of Falconbridge U.S. Inc. (Pittsburgh), reported a deficit of 6,000 metric tons (mt), which, he said, explains some of the nickel dislocations felt throughout the year. He explained this calculation using a chart showing production of 556,000 mt (down from 572,000 mt in 1989), to which he added exports from Socialist countries for a total new supply of 665,000 mt. Against this, he measured consumption at 661,000 mt and a technical loss of about 10,000 mt.
In 1991, Moore said, production levels will be higher than in 1990 (one reason being the end of the SLN strike), totaling 588,500 mt. Socialist exports will bring this sum to 693,000 mt. Consumption, on the other hand, will be off to 648,000 mt, and, considering technical losses of about 20,000 mt, there should be a surplus of 25,500 mt, he estimated.
"Nickel will be more available in 1991 than in 1990," Moore predicted, adding that "the dislocations of nickel products during 1990 should be improved." He stressed that "producer inventories are now as low as they ever have been" and "additional inventories would ease the very tight shipping schedules that now exist." He noted that the upcoming expiration of labor contracts at major nickel companies, such as Inco and Falconbridge, will contribute to the market uncertainties in 1991.
"Indeterminate" Near-Term Stainless Outlook
Looking at the stainless market, Douglas K. Pinner, president of Slater Steels Corp., Fort Wayne Specialty Alloys Division (Fort Wayne, Ind.), said, "The near-term outlook is indeterminate." In 1990, all products were down except plate, bar, and semifinished, he noted, pointing out that the decline has been mainly in "consumer-related" markets and products, such as housing, automobiles, and appliances. On the other hand, Pinner said, "those products that are capital goods-related [such as plate and bar] remained strong through July.”
Indicative of these stainless steel trends, the speaker noted, rod shipments were down 13.8 percent in 1990, tool steel declined 13.4 percent, and sheet and strip decreased by 6.5 percent. However, he pointed out, plate is 19.0 percent higher and bar is up 5.9 percent.
The good news, according to Pinner, is that "order rates have not dropped as expected," and more important, "our nation still consumes half the stainless per capita of many industrialized nations." That is why he believes that the average growth in stainless steel demand will rise to about 4 percent in the 1990s.
Discussing nickel's use in the stainless steel industry, Pinner pointed out that the heaviest demand for nickel-about 62 percent-goes into the making of stainless steel. Of that, more than 30 percent goes into flat-rolled products, he said. Superalloys use about 12 percent of the nickel, he estimated.
Regarding stainless scrap exports, Pinner noted that the size of these exports has varied from 12,000 to 36,000 tons. "Stainless scrap exports directly reflect the volatility of prices," he observed.
Cobalt Price Stability Threatened
In the past three years, the two major cobalt producers--Gecamines and ZCCM--have been successful "in returning stability to a market that showed extreme fluctuations in the early 1980s," said Michael J. Hawkins, president of Memaco Trading Inc. (Westlake, Ohio). However, he warned, major changes have occurred in recent months that "could destroy the stability achieved over the last three years unless the major producers maintain discipline."
Hawkins pointed out that in 1987 the producer price stood at $7 per pound; in 1988, the price was increased to $8.40 a pound, fixed to the end of 1990. At a meeting in Zaire in mid-September, a new price of $11 a pound was established to go into effect on Jan. 1. Meanwhile, the "free market price," which had been at about $1 a pound below the producer price, began to inch up. In mid-January 1990, it rose based on rumors of delivery difficulties by the African producers and limited availability from Canadian producers, Hawkins said. By April, the free market price was level with the $8.40 producer price.
"In mid-July," he indicated, "reports of internal difficulties in Zaire and Zambia caused a rapid increase in the free market price to $10 a pound, and then to $12.50 a pound by the end of August." At the time of the roundtable, he added, the free market price of cobalt had risen to $14 a pound, according to reports. "In the last week," however, he said, "prices have eased to between $13 and $13.75 a pound."
Most of this business was intermerchant, Hawkins said, although some consumer buying was reported. He said that “cobalt supplies are likely to be tight during 1991, especially if rumors of production problems in Zaire are confirmed.” Gecamines is estimating its 1991 output at 13,000 mt.
Hawkins indicated that "the recent rise in the free market price may be expected to increase the demand for scrap or secondary metal," but he noted that since most large consumers hold contracts based on the $8.40 producer price, "this increase may not be apparent until the new producer price of $11 becomes effective."
Rapid Increase Seen in Molybdenum Demand
Moly demand is increasing rapidly as more specialty steel is produced, particularly in newly industrialized areas of the world, according to John Lodenkamper, manager of moly marketing, Cyprus Minerals Co. (Englewood, Colo.). “This trend can only be expected to increase over the next decade," he said.
Lodenkamper noted that moly production will reach 205 million pounds this year, of which 45 percent will be primary output. (The remainder is a byproduct of copper production and scrap.) He said that there is “maximum output” from copper mines, with consequent strong moly byproduction. "If copper prices decline," he continued, “we might expect a net decrease from these sources.” If, on the other hand, there is good moly demand growth, "a higher proportion of the market will be supplied by primary mines," he said.
Demand for moly in 1990 was estimated at about 199 million pounds, off slightly from the 1989 level, Lodenkamper reported. “Short-term demand from Eastern Europe, especially from the Soviet Union, has been temporarily impacted, due to economic dislocation and lack of foreign exchange."
Discussing the moly price situation, Lodenkamper said that "spot prices began the year near the low end of recent levels, but rallied in the spring due both to a pickup in demand and consumer inventory depletion." Prices fell during the summer, he noted, but recovered in the third quarter. Today's market is less subject to spot dealer prices than in the past, he pointed out, "because producers have shown the ability to adjust supply and demand in order to balance the market."
Scrap units are an important contributor to supply, Lodenkamper asserted. He indicated that “most recyclable units come from stainless, high-speed, superalloy, and ‘chemical’ areas, with the latter comprising both recovery from catalysts and pure moly scrap.”
Chrome Shows Surplus, Declining Prices
As consumption of ferrochrome dropped from record levels in 1988-1989, production continued at high rates in 1989, said William R. Curran, president of Stratcor Technical Sales Inc. (Pittsburgh). "The result has been a significant surplus and rapid decline in prices resulting in an underutilized industry, despite fairly reasonable demand," he said.
Curran emphasized that at current pricing levels, he estimates that "well more than half the Free World chrome producers are operating at below the break-even cost level." He said that it was "most probable that some of the higher cost producers will be the first to be rationalized in a recessionary scenario."
Ferrochrome charge-chrome projections, he said, are influenced mainly by stainless steel output. Prior to the invasion of Kuwait, the consensus was that "stainless steel and ferrochrome would pick up by mid-1991 and total production could reach levels similar to 1990." Now, however, he said, "a recession could develop in most Western industrialized countries and continue well into 1991, if not longer. In that case, stainless steel production could show a significant decrease in 1991."
Curran said that the surplus of ferrochrome was "reduced considerably" between 1989 and 1990 and that U.S. output has been declining since the price began to decline. "The market appears to be in equilibrium at the present time," he observed, "and prices have returned to the historical trend that predated the 1988-1989 shortage." Once the overhang in economic capacity is used, he said, "a stable market following the historical trend could be valid throughout the rest of the century."
Arnold I. Plant, senior vice president, Samuel G. Keywell Co. (Baltimore), and chairman of the Institute of Scrap Recycling Industries's stainless & alloys committee, was the roundtable moderator and fielded questions from the attendees. ReMA Second Vice President D. Cap Grossman, Grossman Iron & Steel Co. (St. Louis), opened the meeting and welcomed those present. •
Economic concerns weighed on executives at the recent Nickel/Stainless Roundtable, but some glimmers of future potential shined through.