Severe Shortage Overtakes Stainless Scrap Market
A remarkable turnaround in stainless scrap demand has transformed the world market. "We are facing a severe scrap shortage," Chairman Michael Wright of the UK told the Stainless Steel & Special Alloys Committee of BIR in March, during the Spring convention of the world recycling federation in Madrid.
World consumer demand could rise by between three- and five-percent this year, but availability of purchased scrap was expected to fall by some 700,000 tons- around 13 percent. In West Europe a drop of 300,000 tons or 15 percent to 1.5m tons was anticipated. Supplies from East Europe could fall by 24 percent from 800,000 to 600,000 tons.
Mr. Wright explained the causes of this dramatic situation. First, lower stainless production in the second half of last year had reduced availability of new production scrap. The second factor was price sensitivity- high nickel prices tracking high volumes of reclaim-ed scrap and lower nickel prices leading to reduced volumes. Third was the reorganization of Russian exports through selected ports, initiated in February this year. Depending on how long this took, a predicted shortfall of 200,000 tons might widen and even double.
Examining the consequences, he said European consumers would have to reduce the average charge of purchased scrap by 40 percent to approximately 30- to 32-percent of the total. Demand for primary nickel and chrome would increase, possibly resulting in a rise in nickel pricing. If world-wide austentitic production rose by only three percent this year, demand for primary nickel and chrome would expand by 15- to 16-percent. Between October 2000 and the end of March this year, Mr. Wright pointed out, the LME nickel price had dropped from US$7,000 to US$5,800. But in April/May it increased to US$7,500. A further consequence of tightening supply would be a reduction in scrap discounts.
The past year, he commented, had seen a roller-coaster effect on demand, availability and pricing. It had never been more important for consumers and suppliers to work closely to ensure continuous supplies and stable market pricing.
Barry Hunter, former Chairman of the committee and now president of BIR, reported that in the United States, after "a decent increase in consumer buying activity" during April, May had seen "decent turned into dramatic".
Exports flowing at around 4,000 tons a month, lower domestic arisings as a result of a slowing economy, plus the influences of rapidly-rising LME nickel pricing and continued strength in the high temperature alloy business, had combined to bring US consumers "roaring back into the buying market".
A shift away from exporting, he said, could become significant, but so far latest figures - for February - showed 25 percent of US stainless scrap shipments going to Europe. That compared with below 10 percent for the whole of 2000, and was without any material going to the historically-important Spanish market.
Mr. Hunter questioned the situation in the USA once North American Stainless (NAS) came on stream with 800,000 tons annual production capacity later this year. Where would the scrap come from? Perhaps the US would become an importer as had happened with carbon steel scrap. The roller-coaster effect that characterised the stainless business seemed to be increasingly challenging, said Mr. Hunter. He believed the ride was nowhere near over.
In a round-up of European market reports, Mr. Wright demonstrated that the message was the same: from March/April onwards producers were expecting an increase in demand for scrap against a background of low availability.