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Overcapacity, imports put a strain on stainless: producers and analysts predict a better year for specialty metals in 2004. (Specialty Market Outlook).

Article Excerpt
Given signs the economy is improving, the U.S. dollar is weakening and the Section 201 tariffs are working, prospects are improving for producers and distributors of stainless steel.

Conditions in the stainless steel market have been deteriorating for several years, but may have hit a turning point, says Andrew McElwee, vice president of bar products at Carpenter Technology Corp., Wyomissing, Pa. "Over the past five to six months, the market has stabilized at what we hope to be the bottom. Our shipment levels have been pretty consistent."

In its fiscal third-quarter financial results released April 22, Carpenter reported improvements in net income and sales to certain industrial markets. Much of that was due to increased sales of stainless rod, thanks to the Section 201 tariffs, McElwee says.

The Specialty Steel Industry of North America (SSINA) trade association reports that first-quarter imports of stainless rod declined by 50 percent, and stainless bar by 20 percent. During the same period, imports of stainless sheet and strip--which are not covered by the Section 201 tariffs--increased by 14 percent (see "Stainless Imports Increase Despite 201, Weak Demand," page 27).

Though North America has the production capacity to meet its own stainless steel needs, imports still capture about one-quarter of consumption. This high degree of import penetration in a flat market creates a highly competitive, low-margin pricing environment. Stainless prices have eroded about 15 percent over the past two years despite the rising cost of raw materials.

"All the elemental materials we buy are up year over year," McElwee says. "Last June, nickel cost $2.74 per pound, now it's at $4.00. Chromium was 28 cents a pound, now it's 44 cents; molybdenum was $2.80, now it's $5.85 a pound. These are significant increases. Pricing absolutely has to start to recover."

The weakening of the U.S. dollar against the euro should help domestic stainless producers. "I am a firm believer that you will see a significant fall-off of European stainless imports into the U.S.,"...

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