STEEL GRIPS online - More stainless steel output cuts required to support prices

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More stainless steel output cuts required to support prices

Aug 2, 2010

Most regions have recorded a moderate, though gradual, economic recovery since the darkest days of the so-called Global Financial Crisis. However, there has been no significant upturn in the demand for stainless steel, especially in the West. Producers all over the world are now having to curb their output in an attempt to control inventory levels and prevent prices from crashing again.

There were definite signs of improvement in the US in the early part of this year. Indeed, a recent report from the Specialty Steel Industry of North America showed that stainless steel consumption in the first quarter of 2010 had risen by nearly 50 percent, year-on-year. Activity has clearly slowed since then.

North American Stainless is now producing at less than half of its maximum capability and delivery lead times are short. AK Steel and Allegheny Ludlum, as well as NAS, are quoting less than two months for delivery of type 304 cold rolled coil. ThyssenKrupp's new rolling capacity is coming on stream at a lean time for orders. Market participants are expecting some pick up in demand after the summer vacation but few are predicting a sustained upturn into the winter.

Japanese customers are no longer purchasing in anticipation of higher prices, yet supply chain stock levels are increasing. The mills are said to be considering discounted pricing to stimulate sales and NSSC has stated that it will tailor its output to consumption. Weakened demand has seen inventories in South Korea climb to their highest mark since September 2007, according to the Korea Iron & Steel Association. Despite this, the country's main primary stainless steel producer, Posco, has no plans to cut production at present.

Taiwan's two major stainless steel makers continue to limit output as a result of poor sales tonnages. Tang Eng is running its Kaohsiung works at around 60 percent of its capacity, while Yusco's crude stainless outturn for July will be 10,000 tonnes down on the May figure. Inventories throughout the supply chain in China have grown as production continued apace over the past couple of years. Buyers are now exercising caution. Mills including Jiuquan Iron & Steel have announced their intention to reduce output, while industry leaders Shanxi Taigang and Baosteel Stainless will take maintenance breaks during July and August.

There is something of a mixed picture in Europe. Economies in the south of the continent continue to struggle. Stainless suppliers there are also competing with cheap imports from the Far East. Some countries further north, particularly Germany and Sweden, are showing very promising signs of recovery. Demand across the region, though, has slowed seriously in recent weeks. This will be offset, of course, by the steel makers' traditional summers vacations.

However, some of the financial stimuli that helped to sustain activity in Europe are starting to disappear. Several car scrappage schemes have finished and some governments are now looking to cut spending and reduce their budget deficits. Many observers believe that local mills will have to be very watchful about matching output to demand and keeping prices at a profitable level.

MEPS