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China casts shadow over bright future for stainless: stainless steel demand will continue to shine this decade, but future excess capacity--particularly from Asia-may lead to trouble. Meanwhile, raw material surcharges stir buyers' ire.

Article Excerpt
Gathered March 4-6 in the California desert, Specialty Products Division members of the Metals Service Center Institute learned about the near and distant future for stainless steel, and were given a dim prognosis for the health of American manufacturing. Following are highlights of the meeting.

GLOBAL STAINLESS OVERVIEW

Stainless steel has been a success story since the 1950s. Global production and consumption grew about 6 percent per year through the second half of the 20th century, and is forecast to continue growing at a 5 percent rate through 2010, said Markus Moll, managing director for Steel & Metals Market Research in Tirol, Austria.

From 23 million tons of ingot, the average industry yield is 88 percent, or about 20.9 million tons of finished product. More than 80 percent becomes flat roiled product, 20 percent becomes long products. "The most important product is cold rolled sheet and strip. We have almost 13 million tons of cold rolled products--10.4 million tons of sheet and 2.5 million tons of strip."

Changes in the last 10 years have been dramatic. Western Europe was the biggest consumer of all stainless product forms in 1993, followed by the United Stales and Japan. In 2003, Europe, the United States and Japan were still the top three consumers, but "China is chasing us with almost 5 million tons. South Korea, Taiwan, India are all approaching the 1 million ton level for consumption."

The supply side has changed a lot in 10 years, too, especially through producer consolidation, Moll said. "The growth since 1990 is concentrated with a few companies, such as Acerinox, which grew 65 percent since taking over North American Stainless, and Posco, which grew 70 percent."

He offered a closer view of Chinese stainless production and consumption. "China has the potential to become the leader in this industry with 30 percent growth in output each year. This is not growth in consumption," he stressed. "More than half tire stainless consumed in China today is re-exported as finished goods."

From making the simplest parts 10 years ago-like fasteners, fittings and flanges--to making much more sophisticated components today, Chinas goal is to export finished goods all over the globe.

Chinese producers have no cost advantage as exporters due to the tight supply of scrap, high energy costs, rising ocean freight rates and other trade-related costs. Nonetheless, Chinese mills plan to expand, especially Baosteel. "China will be producing 6 million tons of cold-rolled by 2010," Moll predicted, noting that "the Chinese have a three-phase plan...

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