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A disappointing stainless steel and special alloys scrap sector may soon be helped by improving aerospace orders and other factors.

Brian Taylor June 27, 2013

Presentations offered at the Stainless Steel & Special Alloys Committee meeting of the Bureau of International Recycling (BIR) at its 2013 World Recycling Convention, which took place in Shanghai in late May, provided a rundown of challenges and future prospects in the sector.

Several traders who sit on the committee as well as guest speaker Markus Moll of Austria-based Steel & Metals Market Research referred to reduced generation of and demand for stainless steel scrap as the prevailing market concern in 2013.

Some of these same presenters, however, also referred to present and near-term future factors that are likely to breathe some new life into the stainless and specialty alloys sectors for producers of these metals as well as their scrap suppliers.


Fleet Factors
At the BIR meeting, reports from the United States were generally more favorable than those from Europe, though recyclers in both regions will benefit if the aerospace industry recovers from recent turmoil.

Phil Rosenberg of Keywell LLC in the United States noted that “the re-launch of the Boeing 787 is a good sign for the marketplace” and that Airbus also has announced new orders. For the past several months, the aircraft alloys metal supply chain had “backed up,” said Rosenberg, as aircraft production slowed down.

Several aircraft orders had recently been announced when Rosenberg made his comment on 27 May, and several additional aircraft orders were announced within the next two weeks:

  • Regional airline Sky West in the U.S. placed an order worth up to $8.3 billion for from 100 to 200 regional jets from Brazil’s Embraer.
  • TUI Travel, a United Kingdom-based firm that operates six airlines, placed an order for 60 737 Boeing aircraft from the U.S.-based plane manufacturer.
  • Singapore Airlines split its $17 billion order between Boeing and Europe’s Airbus, including 30 787 Dreamliner models from Boeing.
  • In early June, South Africa’s SAA airline said it was planning to spend between $4 billion and $7 billion for long-haul aircraft but had not yet decided between Boeing and Airbus models.
  • Canada’s Bombardier announced confirmation of an order for 10 of its aircraft by Bahrain’s Gulf Air that was first announced in 2011.
  • In mid-May, Boeing confirmed an order for 50 737 model planes from Turkish Airlines, while Kuwait Airways was considering placing an order for 25 aircraft from Airbus.
  • Airbus in early June raised its 2013 guidance on aircraft orders placed from 700 to 800, according to Air Transport World magazine.


Back on Land

While the aerospace sector offers promises of future activity for specialty alloys, presenters at the BIR conference were not necessarily enthusiastic about the stainless steel industry.

Barry Hunter, president of Hunter Alloys LLC, also in the United States, submitted a report noting that North American Stainless “remains the volume scrap buyer” in the U.S. and that its “order book for June is filling nicely, and they will continue to purchase a significant amount of scrap going forward.”

Hunter said the new Outokumpu mill in Alabama (recently acquired from ThyssenKrupp) “is currently running on a limited production basis [and] it has really no influence on the current scrap market” in the U.S.

Gloomier was Ian Hetherington of the British Metals Recycling Association, who said “2013 seems to be another year of challenges” and listed “an overall decline in new car sales; reduced order intakes for stainless steel processors; soft demand for stainless steel in China; and stainless steel production overcapacity [in Europe]” as among those challenges.

Guest speaker Moll backed up Hetherington by saying the European stainless industry “is on its knees at the moment” with most of its producers unprofitable. He also noted that stainless scrap processors in Europe are not helped by the fact that 83% of stainless scrap is consumed on the continent it is generated. Thus, there is no buoyant export market to help fetch a higher price for material.

Who's Doing the Melting?

To demonstrate that the balance of stainless steelmaking power has shifted to Asia, one can look at national production figures or at the roster of the world’s largest stainless steel companies.

A chart put together by Markus Moll and Austria-based Steel & Metals Market Research (SMR) to demonstrate industry consolidation also demonstrates its now Asia-centric status.

Based on 2012 figures, each of the four largest stainless steel producers are now Asia based:

  1. Shanxi TISCO, China;
  2. POSCO Group, South Korea;
  3. YUSCO Group, Taiwan; and
  4. Baosteel Group, China.

Spain’s Acerinox S.A. came in at No. 5 in 2012.

The recent purchase of ThyssenKrupp’s Inoxum stainless mills by Finland’s Outokumpu will change the roster order for 2013, with the expanded Outokumpu climbing to No. 3 or 4 (barring other mergers).

Based on 2012 figures, 10 of the remaining 13 companies on SMR’s list are based in Asia.

The U.S. can claim AK Steel and Allegheny Ludlum, and Luxembourg-based Aperam Group joins Acerinox and Outokumpu as the other European entry on the list of companies.

The roster seems to lend credence to Moll’s observation that while the BRICS countries (Brazil, Russia, India, China and South Africa) have been growing their consumption of stainless steel by 16% annually since 1995, the rest of the world has been languishing with a meager 1% annual growth rate.

Moll noted that while China’s copper and aluminium industries have relied on imported scrap, its new stainless mills are able to tap into nickel pig iron sourced from within China.

Some good news on the horizon takes shape in light of China’s energy woes. It will be increasingly expensive for China to smelt its own nickel pig iron, and by 2015 imported stainless scrap may again become competitive.

If that happens, it could change the comparatively static nature of stainless scrap flows. While a larger share of the world’s stainless steelmaking capacity has migrated to China, the current availability of nickel pig iron there means stainless scrap has not flowed into China the way copper, brass or aluminium scrap have.


Substitution Patterns
An ongoing trend in the stainless steel industry for several years has been a switch by finished product manufacturers to using low-nickel content 400-series stainless grades rather than higher-nickel 300-series alloys.

Moll told BIR delegates that the ability for manufacturers to use these lower-nickel-content alloys to substitute for high grades of stainless may have nearly reached its peak.

High-grade 300-series stainless alloys made up 80% of the market in the late 1980s, noted Moll. That figure dropped to the 65% range by 2005 and continues to fall, currently residing at 56% or 57%.

Moll, however, said he does not see 300-series market share falling below about 54% or 55%, hitting this floor in 2016 or 2017 and “stagnating.”

In addition to such industry-specific trends, Moll also identified seven “megatrends” along with observations as to how these trends affect the stainless steel industry:

  • Demographic changes that will continue to bring growing wealth and urbanization to emerging countries;
  • The demand for more and efficient energy may mean smaller engines but more stainless components used in biofuel applications;
  • Resource scarcity could trigger ongoing volatile pricing and the search for alternative materials; and
  • Changing design principles could favor the use of stainless steel in some life-cycle analysis models, but longer life cycles could portend longer waiting periods for stainless components to become available scrap.

Some of these differences are already apparent looking at Moll’s 2010 to 2013 figures and forecasts for regional stainless steel growth.

China will add 860,000 tons of stainless output in 2013 compared with the year before, more than half of the world’s total of 1.23 million tons. The rest of Asia is the next biggest contributor to global stainless output, adding 190,000 tons in 2013.

North America, meanwhile, will add just 80,000 tons of output, if Moll’s forecast is correct, while Europe will produce 80,000 tons less in 2013. These two parts of the developed world thus combine to produce a flat figure, while the rest of the world contributes to the 1.2 million tons of stainless steel growth.

“We believe some melt shop closures in Europe are unavoidable,” said Moll. “I’m convinced we need melt shop closures in North America also,” he added, noting that the new Outokumpu mill in the U.S. will add considerable new capacity there.

Although rapid growth is not expected, Moll pointed to the aerospace and energy sectors as bearers of good news in 2013 and beyond.

Aircraft engine makers Rolls-Royce and General Electric are both predicting better sales in 2013 compared with 2012 and the energy sector in the U.S. “is still strong,”

While stainless production may be shifting to China and Asia, processors and traders in Europe and North America may soon become more familiar dealing at longer distances. “Asia needs to generate 7.6 million metric tons of scrap by 2020,” said Moll. He predicted such generation was unlikely, but said instead that the continent’s producers may need to import some 2.8 million tons of stainless scrap from North America and Europe. 


The author is editor of Recycling Today Global Edition and can be contacted at btaylor@gie.net.

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