stainless steel where will stainless shine in 2013? jason kaplan senior principal analyst 27...
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Stainless SteelWhere Will Stainless Shine in 2013?
Jason KaplanSenior Principal Analyst27 September 2012
Copyright © 2012 IHS Inc. All Rights Reserved.2
Stainless Provides No Challenges for 2013
• Will supply tighten?• Demand: Slow return over 2013 in the United States, not until 2014 in
Europe, China losing some momentum• Capacity utilization globally at 60-70% – Mills tended to run at 80-90%• Specialist grades less available, but prioritised by mills
• Will prices leap?• Base price will remain relatively static at and close to present floor• Alloy surcharges: Nickel likely to rise further, chrome supply is a concern
• Risks• Alloying elements have highest risk and largest impact
• Implications for Buyers
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Crude Stainless Production Has Fallen, Reflecting Poor Global Demand
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
0%
10%
20%
30%
40%
50%
Global Crude Stainless Steel Production and Chinese Share (m tonnes, %)
Asia Americas EMEA China's share [RHS]
Source: ISSF Note: Chinese output not broken out before 2005
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Stainless Has Both Consumer and Industrial Applications – Consumer Has Suffered Especially
Catering and Appliances;
37%
Process and Resources; 19%
Construction; 18%
Transport; 12%
Chemical and Energy; 11%
Others; 3%
Breakdown of Stainless Sectorial Demand (%)
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Returning Construction Will Lift Demand, but Only From 2014 in the United States and Later in Europe
2008 2009 2010 2011 2012 2013 2014 2015 20160
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
30%
32%
34%
36%
38%
40%
42%
44%
46%
48%
Global Construction and Share of Residential(2005 $ bn, %)
RotW Asia Western Europe North America Resid. W.Europe [RHS]Resid. N.America [RHS]
Source: IHS
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Output Approaches Long Run Trend by 2015, But Lost Production Amounts to 33 m Metric Tons
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150
10,000
20,000
30,000
40,000
50,000Stainless Steel Production and Forecast
(m metric tons)
Source: IHS Global Insight
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Overcapacity Will Remain an Issue as Situation is Not Being Adequately Tackled
• Chinese capacity to grow to 26 m metric tonnes by 2015
• Additional capacity coming on-line:• POSCO Orissa• ThyssenKrupp Mobile• Acerinox Johor Baru
• A few players are working to cut capacity…
• Outokumpu and Inoxom merger• Aparem available
• …but will stop if market share is hit, without lifting profitability
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
50%
60%
70%
80%
90%
100%
Melted Stainless Capacity Uti-lization (%)
Source: ArcelorMittal, IHS Global Insight
Historic capacity utilization
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Mills’ Margins Have Suffered – Leading to Cost Cutting and, More Recently, to Consolidation
2002 2003 2004 2005 2006 2007 2008 2009 2010 201120%
10%
0%
10%
20%
Gross Operating Margin at Stainless Mills (%)Outokumpu AK Steel Acerinox
Source: Thompson Financials Note: Some results include other specialist, but non-stainless materials
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However, Prices Have Stayed Up – Driven by Non-Base Price Elements…
0
2,000
4,000
6,000
0%
20%
40%
60%
80%CR304 Price Make-up and Alloy Share ($/metric ton, %)
US - Alloy US - Base Alloy share [RHS]
0
2,000
4,000
6,000
0%
20%
40%
60%
80%CR430 Price Make-up and Alloy Share ($/metric ton, %)
Europe - Alloy Europe - Base Alloy share [RHS]
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…As Alloy Costs See Both Higher Levels and Greater Volatility – Traits Likely to Stay
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
20,000
40,000
60,000
80,000
100,000
0
1,000
2,000
3,000
4,000
5,000
6,000
Stainless Steel Input Alloy Costs($/metric ton)
Nickel Molybdenum Chrome [RHS]
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Given Weak Fundamentals Prices Rise Principally on Alloy Increases Through 2014
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Cold Rolled 304 Transaction Price($/metric ton)
China United States Europe
Impact of Greek exit
Source: IHS
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Risks Are on the Downside From a Buyer’s Perspective, But are Mainly on Cost, Not Supply
Risk LikelihoodImpact on
Supply Price
Raw material supply issues could push up prices or even stop supply
Ferro-chrome from South AfricanNickel from more problematic laterite ores
30%20%
MediumLow
MediumHigh
Low freight costs lift trade, but protectionism isolates markets and produce local price spikes
United States, Europe wary of Chinese importsDuties are applied when the material lands
20% Low Medium
Reduced inventories through the supply chain could bring short-term supply shortages, if:
Demand lifts unexpectedlyShipments drop from a supply disruption
10% Medium Medium
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Stainless Will See Little Shine in 2013, With Just a Few Bright Rays From 2014
• Over next 18 months• Supply has few issues even with significant consolidation...• ..while demand remains weak• Base prices, dictated by fundamentals, will stay close to cost of production
• Alloy surcharges expected to stay muted, but rise slowly• Given production costs, nickel prices are un-sustainably low
• Risks stem mainly from raw materials• Little way to self-protect from ferrochrome supply issues• Nickel price hikes are possible / likely if capacity is disrupted
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Implications for Buyers
• Consider locking in prices, perhaps later in 2013• Offers protection against price rises or supply difficulties• Range bound prices over 2013, makes locking in more attractive for 2014• Beware that severe shortages could be met by force majeure clauses
• Explore opportunities to move away from austenitic stainless• e.g. duplex grades could substitute for 304 and 316 in some applications• Discuss material alternatives with suppliers• Automotive specific grades are being pushed by mills
• Implement effective hedging for nickel exposure• Prices still close to multi-year lows and can only rise• New technology is riskier to implement, so shortages are possible• Ferro-chrome and molybdenum hedging on LME is too new
Copyright © 2012 IHS Inc. All Rights Reserved.15
Thank you!
Jason Kaplan Senior Principal Economist [email protected]