From demand to availability to raw materials, the stainless industry is in the middle of a relatively flat run. And only global political events are likely to reverse the trend.
The specialty metals supply chain, in all areas, is experiencing a solid if unspectacular year. More of the same for the back half of the year wouldn’t be the worst thing.
“Our business has been remarkably steady, though we hear things are generally a little slower,” says Bill Gouveia, vice president of Atlantic Stainless, North Attleboro, Mass. “Complaining is relative. If you’d asked three to four years ago if everybody would have taken where we are at this point, everybody would have been pretty happy about it.”
Similar reports are delivered for differing stainless products.
“What we’re seeing in the specialty bar market, it’s been consistent,” says James Coursey, president of Houston-based Premium Alloys, “It’s not climbing like it was in 2018, but there’s still a good amount of business out there.”
“On the long products side, I would say business is OK,” says Bill Gall, vice president for specialty metals master distributor Ta Chen, Long Beach, Calif. “Last year we had a very different year with the tariffs. It worked out to be a very strong first half and a much stronger second half. This year we’ll see more stability as we go through the year.”
For stainless pipe and tube master distributor Dover Tubular Alloys, Dover, N.J., the market has grown a little softer as the year has progressed. “We’re hoping it stays flat, just like it’s doing,” says Justin Rattner, general manager for Dover Tubular Alloys.
A stainless producer tells a similar tale. Frank Alvin, vice president, commercial for New Castle Stainless Plate LLC, New Castle, Ind., describes demand through five months as respectable. “Most of our customers are guardedly optimistic for the balance of 2019 and into 2020. Of course, external shocks to the market from global forces are a well-reported risk factor.”
The primary end market keeping a lid on demand is the energy market. There was some optimism early in the year, but crude oil prices have stagnated in the $60 per barrel range, a number not high enough to generate great drilling activity. “The recovery in oil and gas has stalled a little bit,” says Markus Moll, managing director of SMR GmbH, an Austrian firm that analyzes the specialty metals market.
Coursey sees the same thing in the energy-heavy Houston market. “There are still some spots out there, but it’s seldom and mostly repair work. There are not a lot of new rigs and parts being made for that sector.”
Moll says the consensus forecast for the oil price shows continuing flatness for the next 12 months, barring a supply-side issue such as Iranian sanctions that keep its oil off the global market.
There’s better news in aerospace. “The aircraft market is quite brisk,” says Gall, a sentiment echoed by Coursey.
Petrochemical, another significant end market, is also lagging a bit, says Moll. “The chemical processing industry has not really started its recovery in capex., building new plants on the chemical and petrochemical side.”
Even if demand is not robust, there aren’t a lot of complaints from the supply chain. “From a volume standpoint, when you compare tons to tons, I think when we get to the end of the year we’ll be slightly ahead of last year,” Gall says.
Gouveia had a similar take. “If things stayed right where they are now throughout the rest of the year, we’d be very happy.”
The relatively steady demand environment is supported by other level market conditions, such as the state of the supply base and raw material pricing.
“Raw material prices have been pretty flat. There have been some ups and downs, but nothing crazy,” says Rattner. “The mills domestically are at reasonable lead times. The mills overseas are at reasonable lead times.”
Nickel pricing is an example of the stability. The crucial raw material in the production of stainless and other specialty alloys has traded in a relatively narrow band recently. “It’s been around $5.50 a pound for the past 30 days or so. As long as it’s not volatile, we can plan around that, catering our inventory to where we need to be,” Coursey says.
Moll says the outlook for the key raw materials is mixed. He believes the nickel price will likely fall some before the end of the year. Molybdenum is mostly going sideways, with a chance for a slight fall. The outlier is chrome. “With the situation in South Africa, there’s a chrome shortage in the market. We predict higher chrome prices in the fourth quarter.”
There are some attempts to alleviate that. Noront Resources has planned to build a new ferrochrome smelter in Canada, with Sault Ste. Marie emerging as the favorite city to land the facility, though it will be nearly a decade before the $1 billion facility is operational. The push to establish a plant in North America is a change from recent investments, most of which have been in Canada, as South Africa and Zimbabwe have been dealing with electricity issues.
The stability characterizing the market is not guaranteed, of course. “There are a lot of X factors on the geopolitical landscape that are making all of us nervous,” says Dover’s Rattner. “Unfortunately, that slows down the buying.”
Most, though not all, of those geopolitical issues involve trade. As is the case with other commodity metals, the specialty metals industry has been navigating the various tariffs imposed in the last 18 months. In some ways, however, the production industry has managed the new levies rather responsibly.
When the Section 232 tariffs were announced last year, the domestic stainless mills did not look to immediately jack up prices across the board. Instead, it took some modest gains that didn’t create any significant supply chain headaches.
“They’ve taken 3 percent here, another 4 percent there. Little nips out of the bottle that have inched prices upward. At the same time, importers have found a way to tighten their belts a little bit, so there’s not a 25 percent spread between imports and domestics as a result of the tariffs,” Gall says.
Rather, the domestic producers have used the tariffs to better utilize some of their unused capacity on products they were already providing.
Such modest, incremental increases will have a nice payoff if and when the tariffs wind down. Suppliers won’t have immediate calls to drop prices on materials 25 percent should the tariffs be eliminated, a condition no distributor wants to deal with.
The slow winddown also helped the overall supply situation. Gouveia said there were some isolated issues with availability last year, but the mills generally managed to keep material moving. “We’ve been afraid of shortages, but we haven’t really run into them on a terrible basis. We’ve been able to get everything we need.”
Importers haven’t been run out of the market, either. They’re still the chief suppliers of grades and products the domestics have largely moved away from, they’re just less competitive in the areas where the domestics are significant players.
A recent development involving Allegheny Technologies Inc. highlights how the tariffs are anything but simple. The Pittsburgh-based specialty steelmaker had its request for an exemption on imported stainless slabs from Indonesia denied, which puts pressure on the company’s A&T joint venture with China’s Tsingshan in its push to become profitable. The company insisted the denial will not curtail production at the facility.
Of course, Section 232 was not the only three-digit tariff to hit the industry. The late fall announcement of 301 tariffs has also had an effect on the marketplace. “That was unforeseen by a lot of us in the marketplace, and threw us off,” Rattner says.
The biggest issue for supply chain members is the questions they pose to buyers. “If we knew tariffs were going to remain in effect long term, it would be easier to plan ahead. If you’re placing an order and you don’t know if they’re going to be around in 4 weeks or 10 weeks or 16 weeks, you’re pretty much guessing,” Gouveia says.
It’s also worth noting, Moll says that trade measures aren’t limited to the U.S. He says 85 percent of the global stainless market is already protected by duties or quotas. “That means the global free trade that helped us in the past to grow the stainless industry is coming to a temporary halt.”
While the multitude of measures is felt all over the globe, the key issue affecting the industry is the ongoing trade dispute between the U.S. and China, he says. Should the trade war continue or escalate, it will have a negative effect on the stainless market. “If this continues, we will see a slowdown in China,” he says. And a slowdown there is typically felt everywhere.
Alvin of New Castle Stainless has a similar view. “Some supply chains in steel, and the downstream customer space, have been impacted by trade issues. Given the importance of global trade flows, we anticipate this issue will continue to influence business across the globe as countries, economies and companies navigate a world of increasing complexity and interconnectivity.”
Once these issues are resolved, the long-term outlook for the material remains quite healthy, participants say. Alvin says the increased use of stainless in infrastructure applications, due to its corrosion resistance and sustainability, is a great opportunity. Water treatment and bridges are just two areas that offer opportunities for market share increases, he says.
Moll agrees. “Let’s hope by 2020, some of these uncertainties will have been solved. And we can get back to our normal growth rates in this wonderful industry.”