Spotless Outlook for Stainless Steel
By Dan Markham, Senior Editor
Healthy demand across most end markets is enough to offset worries about the escalating nickel price.
Stainless steel distributors are keeping one eye on the rising nickel price and another on lengthy lead times, but one area of the business is relatively worry free—customer demand. Service centers across North America report healthy business activity in virtually all end markets, a welcome change from the more up-and-down 2013. Looking ahead to the rest of 2014, most expect more of the same.
“I am hearing pretty good optimism from across our wide customer base,” says Stephen Letnich, chief commercial officer at A.M. Castle, Oak Brook, Ill. “They feel the back of the year is going to be better, in terms of both traditional second halves and what we’ve seen in the first half. We’re very optimistic that will come true.”
John Zemon, president of Atlas Steel Products Co., Twinsburg, Ohio, sees the current market as a dramatic improvement from last year. “We’ve had a good year so far, and I’m optimistic for the second half. 2014 will be better than 2013 profitability-wise, tonnage-wise, any way you look at it.”
From small niche jobs to large projects, long products to coils to plate, producers and distributors of stainless describe a healthy market for specialty metals. “Whether it’s heavy truck or auto, cookware or barbecue grills, all of the markets we service are up from last year,” adds Zemon, who also serves as the chairman of the Metals Service Center Institute’s Specialty Metals Product Division.
Finnish steelmaker Outokumpu, which operates several facilities in the United States, forecasts overall growth for stainless in the U.S. this year at 3-4 percent. “That’s supported by the activity we saw toward the end of Quarter 1,” says Kari Parvento of Outokumpu Stainless Americas.
Among the strongest markets for stainless products, say service center and mill executives, are transportation, both automotive and truck trailer, and oil and gas. With the recent proposed crackdown on power plant emissions—a blow to the coal industry—there may be more opportunities in the energy markets soon.
“Oil and gas is starting to adapt more stainless. The life cycle of the product makes the investment worth it,” says Nick Briscoe, vice president of Valley Iron, Fresno, Calif.
Stainless steel producers such as Universal Stainless & Alloys are counting on it. The Bridgeville, Pa., producer has invested more than $170 million at a greenfield facility in North Jackson, Ohio, to produce material for the oil and gas, power generation and aerospace markets. “We look at the trends in natural gas and power generation, and we want to situate ourselves in those markets,” says Denny Oates, president, chairman and CEO of Universal Stainless. “With the new capabilities we have, we should be able to capture a larger share.”
The company is already enjoying the run-up in aerospace, which finally has worked its way through a year-and-half inventory destocking period and is ramping up for several years of growth in commercial aircraft production.
Out West, while Valley Iron has enjoyed the fruits of a healthy oil and gas market, the distributor is not doing as well with the market for fruits. California’s historic drought has dampened prospects for the state’s agricultural industry.
On the other hand, the dry conditions are fueling demand for more water projects, which plays right back into stainless. “Water is a big concern out here. The drought has brought that to the forefront. The awareness is higher of the need for more projects,” says Briscoe. From canal work to pipelines to the expensive desalination plants, any major water project will require a significant amount of stainless steel, he says.
The appliance industry is another major consumer of stainless products. While demand for laundry and kitchen equipment is on the upswing, it’s not the robust increase the industry would like. The Association of Home Appliance Manufacturers forecasts 3.8 percent growth for the market in 2014, but the stop-and-start nature of the housing recovery is preventing major gains.
“We don’t sell to appliance directly, but we sell to the people who supply components, and all those guys are busy,” says Zemon. “They have some supply issues themselves.”
As healthy as its outlook appears, the stainless industry is hoping to grab market share in other sectors. The Brussels-based International Stainless Steel Forum has launched an effort to grow the material’s use in construction applications, creating a series of educational resources for architects, engineers and other designers. The association claims the potential for stainless is significant, but is often overlooked in favor of materials that are included in the teaching programs of architecture, building and construction professionals.
The modules cover the material’s attributes, the finishes and properties, its sustainability and corrosion resistance. The trade group champions its use in both structural and architectural applications.
“The modules are designed to provide universities with the necessary tools to establish and build a knowledge base about stainless steels for the architects and civil engineers of tomorrow,” says John Rowe, secretary-general of ISSF. “This is a major step forward in our goal to expand the markets for stainless steel products.”
Howard Thomas, general manager of Associated Steel Corp., Cleveland, agrees that stainless has plenty of room to grow, particularly on this side of the Atlantic. “Stainless in the U.S. has been underutilized. Europe has been using significantly more stainless in its steel product mix than the U.S. for a long time. I think stainless has a lot of room for growth in the United States,” says Thomas.
Nickel fuels price concerns
The escalating cost of nickel, which is the key driver in the stainless price, is a concern for distributors, who worry that rising mill surcharges might hurt demand later in the year. Nickel dropped below $7 per pound last year, but spiked to more than $8 per pound in the first half, the result of an Indonesian ban on unprocessed mineral ores. The country’s government, hoping to spur development of a domestic refining market, announced a ban on exports of the material in January, a threat the country followed up on. That eliminated a major raw material supplier for stainless production leader China.
That cutoff in supply, coupled with the political unrest in the Ukraine, sent the nickel price skyrocketing, and stainless producers followed suit with surcharge increases.
Thus far, it hasn’t affected customer order levels.
“The customers today are educated, so that the surcharge increases don’t come as a surprise to them,” says Andrew Greiff, president of the specialty metals division for Olympic Steel, Cleveland.
Still, it can sting, Briscoe says. “A lot of customers who bid projects at the beginning of the year are hurting because the price was 30 percent lower. Most times they can’t revise their bids, and they have to absorb the price increase on the metal.”
Oates believes nickel will soon begin to stabilize. “I think we’ll stay where we’re at, with a small upward bias,” he says.
Another issue for the service center chain is the lengthening time it takes to get material from the mills. “Lead times for most of the domestic mills are out to November-December. Some lead times are actually shorter from offshore,” says Zemon.
Greiff sees several factors contributing to the long lead times, including Allegheny’s closure of its finishing operations at New Castle, Ind., a change in product mix at some producers for more ferritic grades, good export offerings and more mill-direct sales. “From a service center perspective, I don’t think we’re seeing strong enough demand from our customers to justify those kinds of lead times. If you asked me where business would have to be to justify 16-week lead times, I’d say GDP in the 4 percent range.”
Changes in the specialty metals supply chain are still shaking out, say executives. Outokumpu is still working out the kinks following its acquisition of the former ThyssenKrupp plant in Calvert, Ala. Allegheny’s new Hot-Rolling Processing Facility in Breckenridge, Pa., is not quite up to full production.
There’s also a new source of foreign product. Italian producer AST was sold by ThyssenKrupp to Outokumpu in the same transaction that landed Calvert, but European courts later ordered the Finnish company to divest the operation, handing it back to TK. With its previous North American sales arms no longer sourcing material from the Americas, the mill has begun making offerings to North American service centers for the first time in more than a decade.
“For us it’s a good fit. It’s a niche mill that can supply some of what we need,” says Zemon.
The distribution market also saw a bit of change with the recent shuttering of stainless master distributor Summit Stainless.
But supply chain members recognize that difficulty locating material at a moment’s notice is not the worst problem to have. “The customers are busy, the mills are busy and the service centers are busy. You can only play the half-empty game so much,” says Greiff.