Market strength: the demand factors for nickel alloys should stay in place, even if China cools down a bit

Recycling Today, Nov, 2004 by Brian Taylor

Economic statistics from China are often considered suspect by American standards, but, no matter who is doing the math, there is little dispute that China's metals industry has been booming for the past five years.

Scrap dealers are certainly aware of it, but so are finished metals producers, brokers, merchants and others who produce buy or sell metal.

That includes those in the nickel and stainless steel segments, where the Chinese construction boom and consumer hunger for durable goods and appliance have helped stainless mills throughout the world enjoy favorable demand conditions,

THE SHIFTING BALANCE. In terms of supply and demand balance, even though nickel producers have some new mining projects underway, the current tilt toward more demand than supply could stay in place in the nickel sector through 2005.

"The outlook for nickel is still fundamentally strong for the next two years," says John Vorberger, Sales and Marketing Manager of Special Products with Eramer North America, Coraopolis, Pa.

Vorherger was one of several speakers who addressed attendees in September at the annual Nickel-Stainless Roundtable, hosted by the Pittsburgh Chapter of the Institute of Scrap Recycling Industries Inc, (ISRI).

Speakers at the session, including Vorberger, noted that demand from China and reviving U.S. and Japanese economies should keep nickel prices aloft and the demand strong for stainless steel scrap.

Vorberger conceded that tighter credit rules iln China are slowing down that nation's metal production growth from the double-digit rates of 2002 and 2003, but added that the nation has now joined the family of the world's major consumers of nickel and nickel-bearing scrap. That status is likely to remain unless dramatic economic or political circumstances strike the nation.

Stainless steel makers in the United States, Western Europe and East Asia are now competing for what Eramet believes are lighter supplies of stainless steel scrap. Scrap exports from the former Soviet Union had kept the market fed, but that vein could be nearly tapped out. "A lot of that material has apparently been depleted over the last decade or so," said Vorberger.

The production of mined nickel ore to help feed global demand for stainless steel and finished nickel is not scheduled to increase until 2006, when an expansion of Eramet's mine and smelter in New Caledonia will be complete. Between 2007 and 2010, two major production facilities--including Inco's Voisey Bay project--in Canada should help boost the supply of nickel ore.

Former nickel trader Martin Abbott, now publisher of American Metal Market, NewYork, said that several potential problems could cause nickel demand and pricing to recede in the next several years, though the emergence of industrial economics in China and India remain formidable growth factors.

Less certain, said Abbott, is the health of the U.S. economy, particularly that of household consumers carrying significant debt loads. "How much longer can U.S. consumers support this--and the global--economy?" he wondered, noting that the month of July brought yet another increase in average household debt.

Abbott expressed concern that federal government deficits could bring increased interest rates that will hit individuals carrying large amounts of credit card debt particularly hard.

He also noted that speculators in the nickel market are concerned about the potential of Russian government interference in the affairs of the Norilsk metals company, similar to what has happened with Russia's Yukos petroleum company.

By and large, though, Abbott commented that these are enjoyable times for metals companies. "Maybe we're finally getting some kind of metallic revenge. In the late 1990s, with the dot-com boom bringing full employment to other sectors, the metals industry was looked down upon because it was 'old economy.' Now, finally, it's worth investing in metals again. The industry is catching up after [several] years of underperformance."

Another speaker at the Roundtable, Andrew Wallace of Allegheny Technologies Inc., Pittsburgh, encouraged scrap recyclers to package special blends of scrap that will arrive at stainless mills ready to be used as furnace charge.

SPECIAL ATTENTION. Daniel Marx of the NewYork office of Considar Inc. told session attendees that the price for its ferrochrome products has more than doubled, going from 32 cents per pound in January of 2003 to 74 cents per pound in April of 2004.

Marx told attendees that while prices may have peaked, they should not drop significantly in the near term, as demand continues to exceed supply. South African chromium exporters continue to sell into a global market with a de-valued rand, which discourages them from increasing their production levels.

His forecast seemingly applies to most specialty metals, as aerospace markets that had been in the doldrums have revved up considerably in the past 18 months.

On the defense side, two of the world's largest air forces--those of the United States and the United Kingdom--have logged many more flight hours in combat and in increased transport and training duties in 2004.