‘Nickel Bubble to Burst—Eventually’
When the Metals Service Center Institute’s Specialty Metals Division met in March in Tucson, one of the foremost topics on the minds of executives was the future of sky-high nickel prices. Many looked to the presentation by analyst Markus Moll for answers. But Moll wasn’t making any definitive remarks about the price of nickel this year—other than that a drop is “inevitable.”
“I cannot tell you when it will happen. Everybody has to draw his own conclusions,” said Moll, who joked about wearing a bulletproof vest to this year’s convention as a consequence of an errant prediction last year.
Instead, the senior market analyst for Steel & Metals Market Research laid out a series of global factors that could change the direction of nickel prices.
Among them is the addition of nickel-producing capacity that could overshoot demand, fewer speculators on the London Metals Exchange and a decline in demand for special grades.
However, demand may continue to outpace supply. Despite nickel’s high price, producers plan only 20,000 tons of capacity expansion in 2008. Many of the planned expansions for 2006 and 2007 have been delayed. Moreover, those producers have not shown the ability to produce to capacity.
“In the last 10 years, capacity has not been fully realized in a single year,” Moll said. “There are always reasons—labor disputes, maintenance disputes, unexpected delays. Between 3 and 10 percent of the capacity was not used as it should have been, as it was forecast. It will be the same this year.”
In contrast, the Chinese are bucking the trend by increasing capacity. “All the other nickel producers have 100,000 reasons why a project that was planned this year has to be postponed until 2009. But the Chinese are growing,” he noted.
Supporting high prices is a possible tightening in the availability of scrap. Moll noted that the flow of scrap from Eastern Europe into Western Europe went down in 2006 despite the skyrocketing price, suggesting one of the prime sources of scrap is drying up.
What should be of major concern to specialty metals distributors is the growing substitution of alternative materials in place of stainless steel for many applications. While distributors can work with customers on a switch from 300 series to a lower grade of stainless, the wholesale switch from stainless to another material is “exactly what the industry doesn’t need,” Moll said.
The stakeholder with the greatest potential to deflate the nickel price bubble is the stainless steel producer, Moll said. “If the stainless industry decides to produce less in the third quarter, and there are signs that producers are doing it, that could have a key impact on the nickel industry. The nickel price is a bubble,” he concluded, “and bubbles burst.”
One other element of Moll’s presentation at MSCI surely grabbed the attention of his audience. Reviewing the generally profitable 2006 and the first quarter of 2007, Moll compared the earnings as a percentage of sales for nickel producers, stainless mills and distributors.
At the start of the year, mills were barely profitable, while service centers were enjoying 20 percent profit margins and nickel producers were up near 40 percent. From that point through the first quarter of 2007, mill profits made a steady climb upward while nickel producers’ profits rose even more from their lofty heights.
In contrast, service center profits remained mostly flat through all of 2006, then plummeted to only 10 percent of sales in the first quarter of 2007—only a fifth of the figure earned by the mills and nickel producers. Stainless service centers, like distributors of other metals, suffered from an oversupply of inventory in the six months leading up to the MSCI event.
“Stock levels [of stainless] around the world changed in the last six months,’ Moll noted, “growing between 20 and 30 percent. Does that mean they’re overstocked? Not necessarily. But the U.S., I would judge, is slightly overstocked.”
Namasco Acquires Connecticut’s Primary Steel
Primary Steel LLC, Middletown, Conn., has been acquired by Atlanta-based Namasco Corp. Namasco is a U.S. operation of Germany’s Klockner & Co. Aktiengesellschaft. The purchase must receive antitrust approval.
Primary Steel, which has seven branches in North America, specializes in the distribution and pre-processing of flat steel products with an emphasis on plate. It had sales of $467 million in 2006. It ranked 29th on the Metal Center News list of the industry’s largest service center companies last year.
“The acquisition of this company will result in an increase in sales of the Klöckner & Co Group in the U.S. of over 60 percent. The addition of Primary Steel to the existing operations of Klöckner & Co expands the company’s geographic market area throughout the U.S.,” says Thomas Ludwig, chairman of the board of Klöckner & Co AG.
Namasco, the 15th largest service center company in North America in 2006 with over $1 billion in sales, has 17 branches in the United States and six more in Canada.
Marmon/Keystone Opens
Wisconsin Service Center
Marmon/Keystone Corp. has opened its newest service center in Little Chute, Wis. The 93,000-square-foot facility will serve as a satellite of the Chicago (Bolingbrook) operation.
“The new branch, strategically located near Appleton, gives us the ability to service not only existing customers, but potential new accounts in Northeast Wisconsin and the Upper Peninsula of Michigan,” says Ed Day, Chicago district manager.
Inventory at the new location includes a full range of carbon, stainless steel and aluminum tubular products, plus stainless bar. Equipment at the facility includes four cranes, two saws with 18-inch and 25-inch capability, a cantilever racking system, sideloaders and several fork trucks.
Edgen Acquires PetroSteel
Edgen Murray Corp., Baton Rouge, La., has agreed to purchase the assets of PetroSteel International through its wholly owned subsidiary, Edgen Murray LLC.
PetroSteel, Bala Cynwyd, Pa., is a distributor of specialty offshore grade steel plates and profiles. Its 2006 revenues were approximately $92 million.
“We believe the acquisition of PetroSteel will broaden our offshore product base, allowing us to provide a comprehensive supply solution to our customers in the oil and gas industry,” says Dan O’Leary, CEO of Edgen Murray Corp. “In addition to expanding our product base, we believe this acquisition will bring outstanding personnel and leadership to our organization.”
Briefs
Shareholders of Steel Technologies, Louisville, Ky., will consider a proposed merger with Mitsui & Co., on Wednesday, May 30, in Louisville. Shareholders of record on April 18 will be entitled to vote on the proposal to approve the merger agreement.
The Steel Service Center and Aluminum Fabrication divisions of Lafayette Steel & Aluminum, Lafayette, Ind., have implemented STRATIX enterprise software from Invera Corp., Newtown Square, Pa. Lafayette also has a location in Indianapolis, which stocks and processes carbon and aluminum coils.
Peachtree Metals Co., Duluth, Ga., will implement enterprise software solutions from Verticent Inc., Tampa, Fla. Peachtree is a manufacturer of stainless steel flat bar and long products for distribution, while offering polishing and coil slitting services.
Parker Steel Co., Toledo, Ohio, has added production cutting to its metric metal services. The company purchased a Marvel programmable high-production vertical band saw, capable of performing single or high-volume production cuts. The company can cut metric-sized bars and tubes from 6 to 220 millimeters in diameter.
Oakside Solutions Ltd., United Kingdom, has completed installation and startup of a 315-inch by 72-inch by 72,000-pound SCS Coil Line from Red Bud Industries, Red Bud, Ill. The line features coil stage and load systems that allow up to five coils to be prestaged for processing. In addition, Globe Stainless, Los Angeles, has ordered a 135-inch by 60-inch by 23,000-pound precision blanking line from Red Bud. The line is capable of running stainless steel from 0.020 inches to 0.135 inches at speeds up to 175 feet per minute.
Michlin Metals, Northbrook, Ill., has chosen to implement STEEL PLUS from Bayern Software, Phoenix, Ariz., to improve efficiency and enterprise resource planning. Michlin will employ STEEL PLUS for inventory control, sales, purchasing and accounting software.
People
Bruce Turgerson, assistant general manager and outside sales manager, has been promoted to general manager at Chicago Tube & Iron Co., Romeoville, Ill. Also, Bob Haville has been promoted to outside sales manager.
Annette Tiesman has been promoted to vice president of sales for Ferguson Metals, Hamilton, Ohio.
Randall Fox has been promoted to president of the Building Products Division at Metals USA, Houston He had served as vice president, sales and operations, for the division.
Rachel Kusienski has been added to the customer service department at Vulcanium Metals Inc., Northbrook, Ill. She has more than 12 years experience in customer service, more than half in the metals industry.
