Metallurgist, Vol. 56, Nos. 1112, March, 2013 (Russian Original Nos. 1112, Nov.Dec.

, 2012)

MARKET FORECAST FOR STAINLESS STEEL*

S. Ilmark

October 2012 marked the hundredth anniversary of the first patents for stainless steel, which were granted to the Krupp laboratory. Was world industry prepared to observe this remarkable event? The answer is more no than yes. There are many reasons for this state of affairs, the main reason being that the rise in the demand for stainless steel is slowing as its price also declines. The market for stainless steel is very sensitive to changes in the international economy. Any economic crisis that results in cutbacks in spending is immediately reflected in the demand for stainless steel. Unfortunately, this year was no exception to the rule. Worsening of the economic situation in the European nations forced even the holders of the Krupp patents to withdraw from the stainless-steel business. Outokumpu is expected to complete its takeover of ThyssenKrupps stainless steel unit by the end of the year. Let us take a look at the state of the worlds stainless steel industry as it approached this noteworthy anniversary. According to data from the ISSR, world production of stainless steel in 2011 increased by 3.3% compared to 2010 and totalled 32 million tons. Over a ten-year period from 2001 to 2011 the production of stainless steel grew more than 67%. Of course, China helped bring about this impressive increase. However, the volume of production worldwide in 2001 was just 730,000 tons which was 3.8% of total steel output. The data for 2011 show that China produced more than 12.5 million tons and that its share of the international market rose to 39.2%. The following nations are among the leading producers of stainless steel: Japan (3,247,000 tons), with 10.1% of the market; India (2,163,000 tons) 6.7%; Republic of Korea (2,157,000 tons) 6.7%; the fifth-leading producer, the U.S. (2,074,000 tons) 6.5%. The second most-important question is What types of products is the worlds stainless-steel industry making? According to estimates prepared by analytical firms (SMR/HAINZ), the ISSF, and leading manufacturers, the total output of finished products made of stainless steel in 2011 was 28,900,000 tons, or 90% of the volume of production. Here, 23,700,000 tons, or 82% of total production, went into the manufacture of flat-rolled products. The breakdown of hot-rolled versus coldrolled products from the latter percentage was 20 and 80%, respectively. Flat hot-rolled products broke down as follows: h/r sheet 58.6%, or 2,780,000 tons; h/r coils 20%, or 950,000 tons; slabs 21.4%, or 1,010,000 tons. The distribution of flat cold-rolled products: sheet 79.2%, or 15,020,000 tons; skelp 17.6%, or 3,340,000 tons; plate 3.2%, or 600,000 tons. For rolled sections and forgings: h/r rolled sections 43%, or 2,240,000 tons;
*

From materials of the Second International Conference Stainless Steel for a Modern Russia.

Spetsstal Association. Translated from Metallurg, No. 12, pp. 47, December, 2012.

0026-0894/13/1112-0883 2013 Springer Science+Business Media New York

883

TABLE 1
Volume of production Product tons %

Cold-rolled sheet Electric-welded pipe Hot-rolled sheet Hot-rolled bars Slabs Cold-worked bars Wire Seamless pipes Strip Cold-rolled skelp Forgings Hot-rolled coil Sections Total

15020 3450 2790 1730 1010 1000 950 630 600 540 380 300 150 28550

52.6 12.1 9.8 6.1 3.5 3.5 3.3 2.2 2.1 1.9 1.3 1.1 0.5 100.0

wire rod 38%, or 1,970,000 tons; semifinished products, including tubular semifinished products 19%, or 990,000 tons. It must be pointed out that all of these rolled products and semifinished products were used to make other types of products: electric-welded and seamless pipes, cold-deformed rolled sections, profiles, angles, and forgings. The future of rolled-product manufacturing can be seen from the available data. The likely distribution of the different types of finished products is shown below. According to the ISSF data, most of the grades of stainless steel that were made were in the 300 series. The percentage of such steels increased from 57.7% in 2010 to 58.2% in 2011. The percentage of 200-series stainless steels made rose from 12.0 to 13.8%, but the output of 400-series grades decreased from 30.3% in 2010 to 28.0% in 2011. Evaluating production data according to grade is important for determining the effect of the production of the raw materials mainly nickel on the cost of stainless steel. Within the last ten years, the average annual prices for nickel on the LME have climbed above $37000/ton (2007) and dropped below $15000/ton (2009). A sharp rise in the cost of nickel has always been accompanied by a reduction in the output of stainless steel, especially the grades that contain nickel (Fig. 1). As regards the nickel market, information provided by the International Nickel Study Group (INSG) show that in the third quarter of 2011 nickel production began to exceed actual nickel consumption. The data reported for 2011 shows that nickel production totalled 1,590,100 tons, while nickel consumption reached just 1,568,800 tons. Thus, supply exceeded demand by 21300 tons. This trend persisted in 2012. According to the INSG data, world production of primary nickel in the first half of 2012 was up 6.9% over the first half of 2011 and reached 839,900 tons. Consumption increased by 7.5% (to 816,000 tons). The balance between nickel production and consumption in the first six months of 2012 was 23900 tons. The balance between the supply and demand is the main factor that affects nickel prices, although financial speculators also have an impact. Their influence is readily apparent on the graph that shows the change in the prices and volumes of the warehouse stores of nickel at the LME (Fig. 2). 884

Fig. 1. Change in the average yearly prices for nickel on the LME (dollars/ton) and the volumes of production of stainless steel (thousands of tons): * projection.

Fig. 2. Balance of supply and demand for nickel (thousands of tons): 1) production; 2) consumption.

The nickel market has consistently trended downward over the last six months. Most analysts believe this trend to be a reflection of the world economy, the demand for stainless steel, and the corresponding demand for nickel. The average monthly prices for nickel on the LME from the end of February to August 2012 dropped nearly 23% to $15652/ton, while warehouse stocks grew by 20.8% (to 118,900 tons). Considering the oversupply, no one could have foreseen the large jump in prices even when allowance is made for the period at the beginning of Autumn when the demand for stainless steel has traditionally been expected to increase. However, the average monthly price for warehoused nickel on the LME jumped 10.0% from August to September and reached $17219/ton (it eventually rose above $18500/ton later in September). Spot prices fell to $17300/ton in October. One other important and, more to the point, irreplaceable raw material needed to make stainless steel is ferrochromium. Estimates made by analytical firms predict that the volume of production of ferrochromium will be 6.3% greater in 2012 than it was in 2011 and will reach 9,420,000 tons. Demand will increase by just 2.9%, to 9,180,000 tons (Fig. 3). The participants in the stainless-steel market note that ferrochromium production capacity is continually increasing, which will make prices stable for the near term. South Africa and China are among the leading producers of ferrochromium, accounting for 33% of total world output. The next-largest producers are India (13%) and Kazakhstan (11%). The largest consumers of ferrochromium are China, Europe, and Japan, which respectively account for 51%, 17%, and 8% of the total world consumption. 885

Fig. 3. Comparative data on the volumes of production and consumption of ferrochromium (thousands of tons): 1) consumption; 2) production; 3) production capacity; * projection.

Since the beginning of 2012, the prices for chromium have reflected the general trends in the stainless steel market. The brief increase seen in the first quarter was replaced by a decline that was expected to persist until the end of the year. The recommended price of charge chrome for the fourth quarter dipped to $1.10/lb. Scrap is also needed to make stainless steel. Scrap is a valuable resource for any producer of stainless steel, since about 90% of it is recycled and can be bought at prices below those for the primary alloying elements. On the whole, the scrap that is used can be divided into three main groups: 1st group scrap formed in the process of making products composed of stainless steel. Such scrap can be recycled in 23 months; 2nd group scrap formed during the fabrication of products at machine plants and in metal-consuming industries. The recycling time for the scrap in this group ranges from 6 to 9 months; 3rd group processed (recycled) scrap obtained from stainless-steel products that have been permanently removed from service. Recycling time for this group is within the range 1525 years. The percentage of scrap use in industry differs for each country for several objective reasons, including the length of time scrap remains on the market, the overall level of use of stainless steel in the given country, and its import-export policies. According to an expert appraisal made by the Hainz H. Pariser company, more than 650 million tons of stainless steel was made worldwide from 1950 to 2012. Japan is still the largest producer, accounting for 133 million tons of this output. Japan is followed by the U.S. (100 million tons), China (85 million tons), Germany (52 million tons), and Italy (28 million tons). While Japan is a net exporter of stainless steel, the U.S. and Europe use more than 60% of the stainless steel that they produce. China, which just recently became one of the worlds leading producers and consumers of this product, has not yet reached the stage of large-scale recycling. Except for the crisis period (20082009), the demand for scrap has continually increased. The total volume of scrap stockpiling and shipment is projected to be 8,778,000 tons in 2012, while demand is expected to reach 8,966,000 tons. On the whole, scrap prices correlate with the cost of the alloying elements but are discounted 1012%. According to expert estimates, the raw materials used to obtain cold-rolled products in accordance with the standard AISI 304 account for 70% of those products prices when new (non-recycled) materials are used but only 60% when scrap is employed instead. This difference largely explains the interest being shown by manufacturers in expanding their use of stainless-steel scrap. One other topic that merits attention concerns the balance between the supply and demand for stainless steel. There have already been instances in which the prices for stainless steel have risen not only due to changes in the cost of the raw materials and operating expenses but also because of increased demand from the end-users of this product. Let us take a closer look at the supply and demand for stainless steel. Data reported by the ISSF shows that, compared to the first half of 2011, stainless steel production for the same period of 2012 increased 4.7% and reached 17,219,000 tons.

886

It rose nearly 10% in the second half of 2012 relative to the corresponding figure for 2011. Knowing this, it is still too early to say that there is a shortage of this product. One other factor that influences the movement of prices is the change in the volumes of the warehouse reserves. The recent decline in these reserves is leading many experts to talk about the beginning of a restocking period which in turn is usually accompanied by a rise in prices. ISSF continually monitors the warehouse reserves of the leading manufacturers and largest metal traders. Their data shows that the average monthly reserves increased 4.6% from the first to the second quarter of 2012 and totalled 2,956,000 tons, which has not changed to the present. A price increase would of course be expected should there be any drop in warehouse stocks, but current economic conditions do not portend this. We should point out the main risk factors for the worlds stainless steel industry. Among the economic factors are: low rates of growth for the worlds economy; financial problems facing several European nations; U.S. monetary policy; slowing of economic growth in China. The political risk factors: deterioration of the situation in the Near East; absence of political stability; escalation of territorial disputes. Despite the negative effect associated with the economic crisis, we regard the future with optimism. According to experts projections at the Spetsstal Association, the world output of stainless steel will increase 3.5% from 2011 to 2012 and reach 33.24 million tons. Production will continue to increase in 2013 and will rise another 5.3%, exceeding 35 million tons. Projections are that the average annual regional prices for flat cold-rolled products made in accordance with the standard AISI 304 will decrease from 2012 to 2013 by an amount ranging between 2.2 and 2.5%. However, the same projections predict that in 2014 prices will rise substantially by an amount ranging from 8.5 to 11.0%. Conclusions. The increase in the output of stainless steel that is expected to occur in 2013 will outstrip demand. Medium-term demand is projected to go up in the second half of 2013 and will continue to do so until the middle of 2014. The production of nickel will still exceed the demand for this metal in 2013, but this imbalance should become smaller and almost completely disappear in 2014. The reduction in the oversupply of nickel in 2013 will engender a slight rise in prices. On the average, prices are expected to fluctuate by 15% during this year. An increase in the price of ferrochromium is anticipated for the first half of 2013 and should be followed by a downward correction. The above events should collectively lead to a brief increase in the prices for stainless steel during the first quarter of 2013. Those prices are then projected to stabilize in the middle of the year before being impacted by a downward correction. A stable price increase is expected for the fourth quarter of 2013 and should continue until the middle of 2014.

887