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PrintWhether they are talking the market up or down, or simply trying to hold prices steady in order to turn a quick profit, merchants at the centre of the European stainless steel scrap market are in an eternal struggle with forces often outside their control.
So how do they try to guess the next move and what does the future hold for this increasingly volatile and overpopulated sector? MB quizzed one such merchant on September 20.
“Right now there's no demand, no demand at all. Prices are relatively stable, although they're not purely being driven by nickel as has been the case in the past,” he said.
Nickel has largely been priced in the $21,000/500 per tonne bracket for some time now, albeit with some sizeable variations to either side on occasion, he said.
“Nickel is often the first thing people think of when it comes to the price of stainless steel and its scrap, but there are other forces at play,” the merchant said.
“We also have to factor in currencies and the cost of iron and chrome, and the fact that often prices are being driven by the hopes and expectations of those involved in the market. They do vary quite a bit and, of course, you have to take into account the LME [nickel] prices,” he said.
Any perceived lack of stainless scrap availability in the EU was a misconception, he added.
Many of his suppliers had “trunks” of material lying around unsold in their yards; they hope to sell the material at higher prices in the future, he noted.
To sell now would mean an immediate loss, he explained.
“They cannot sell it. Some have managed to reduce their stocks but are not making money from it,” he said.
The European supply situation still works, the source added, citing his company’s perspective.
But he acknowledged this sentiment was not a universal one.
“We have contracts to supply Asia at the moment. There's still demand in Asia and we can fulfil it. Others don’t have these supply deals,” he said.
But sourcing material in continental Europe is relatively easy, he said. “We look to Germany, Denmark and Poland for scrap. Those three are our key sources and there is plenty of material available.”
The European stainless market’s inward-looking disposition is largely responsible for the problems it now faces, he said.
“The main problem is that everyone in Europe thinks and talks about one thing, then does the exact opposite. This has been a long-term issue,” the merchant said.
European overcapacity in the stainless steel sector will ultimately require reduction, he added.
“It makes no sense at all," he said.
The locations of stainless steel operations in Europe, which are a legacy of the past, do not help matters, the merchant said.
“The locations are crazy. The only stainless operation that is well placed in all of Europe is Acerinox. It has a base directly on the sea and has the capacity to handle large shipments,” he said.
“In Germany, the mills are in the middle of the country. In France, they have the worst locations ever – we normally go there for skiing. They’re not really ideal for steelmaking. Italy is in the same boat,” he said.
“Look at the meltshops in China and India. They might not always be the best but they have two major advantages – cheap electricity and labour costs,” the source said about Asian production facilities.
This excludes nickel pig iron, an often debated and sometimes envied stainless steel raw material that only China has access to at present.
But the source dismissed the raw material.
“Everyone talks about nickel pig iron but it’s nonsense really. It shouldn’t really be a factor because there’s plenty of nickel around,” he argued.
But the nickel market was not without its own problems, he reflected.
“It's overpriced; a fair price would be $17,000-18,000 per tonne. At that price there might be more demand,” he said.
The three-month official price on the London Metal Exchange on September 20 was $21,175/200 per tonne.
“If you want to know why nickel prices are so high it's because there’s too much money lying about," he continued.
"There’s no interest in other markets [equities], so the only thing to do is to buy into commodities. It has nothing to do with physical demand,” he said.
The LME was no longer a hedger’s market but a gambler’s market, he added.
“It’s all about technical investing now, but I keep an eye on it of course,” he said.
Drawing comparisons between the Asian stainless steel market and that in Europe is difficult because they operate on different levels, the merchant said.
“The system over there [in Asia] is a little different; [in China] they have different systems,” he said.
“Over here, if we want to build a new plant it can take years to pass funding, planning, and environmental regulations,” he said.
The time needed to build the same project in Asia would be a fraction of that, the merchant said.
The merchant also dismissed the notion that consolidation was a way for the European stainless industry to deal with its growing number of issues.
“It would be the wrong thing to do. I don’t believe in consolidation. The shareholders of the existing companies are losing money every year; they do not want to continue funding failures," he said.
“Think of it this way: if stainless steel had made a lot of money for Mr Mittal, he wouldn’t have separated it from the main company,” he said, referring to ArcelorMittal’s former stainless steel division Aperam, which was spun out of the steel major and subject to an initial public offering in early 2011.
There is one possibility yet to be explored in depth: the possibility of Chinese companies buying up stakes in European producers, he said.
“I hope a Chinese company will go down that track. If they do, they will solve some of the problems they currently have with exports into the EU,” he added.
“If that were to happen then, finally, the stainless steel industry in Europe will be reduced to just a few participants: perhaps Outokumpu, Acerinox, and maybe one of the German firms,” he concluded.
So how do they try to guess the next move and what does the future hold for this increasingly volatile and overpopulated sector? MB quizzed one such merchant on September 20.
“Right now there's no demand, no demand at all. Prices are relatively stable, although they're not purely being driven by nickel as has been the case in the past,” he said.
Nickel has largely been priced in the $21,000/500 per tonne bracket for some time now, albeit with some sizeable variations to either side on occasion, he said.
“Nickel is often the first thing people think of when it comes to the price of stainless steel and its scrap, but there are other forces at play,” the merchant said.
“We also have to factor in currencies and the cost of iron and chrome, and the fact that often prices are being driven by the hopes and expectations of those involved in the market. They do vary quite a bit and, of course, you have to take into account the LME [nickel] prices,” he said.
Any perceived lack of stainless scrap availability in the EU was a misconception, he added.
Many of his suppliers had “trunks” of material lying around unsold in their yards; they hope to sell the material at higher prices in the future, he noted.
To sell now would mean an immediate loss, he explained.
“They cannot sell it. Some have managed to reduce their stocks but are not making money from it,” he said.
The European supply situation still works, the source added, citing his company’s perspective.
But he acknowledged this sentiment was not a universal one.
“We have contracts to supply Asia at the moment. There's still demand in Asia and we can fulfil it. Others don’t have these supply deals,” he said.
But sourcing material in continental Europe is relatively easy, he said. “We look to Germany, Denmark and Poland for scrap. Those three are our key sources and there is plenty of material available.”
The European stainless market’s inward-looking disposition is largely responsible for the problems it now faces, he said.
“The main problem is that everyone in Europe thinks and talks about one thing, then does the exact opposite. This has been a long-term issue,” the merchant said.
European overcapacity in the stainless steel sector will ultimately require reduction, he added.
“It makes no sense at all," he said.
The locations of stainless steel operations in Europe, which are a legacy of the past, do not help matters, the merchant said.
“The locations are crazy. The only stainless operation that is well placed in all of Europe is Acerinox. It has a base directly on the sea and has the capacity to handle large shipments,” he said.
“In Germany, the mills are in the middle of the country. In France, they have the worst locations ever – we normally go there for skiing. They’re not really ideal for steelmaking. Italy is in the same boat,” he said.
“Look at the meltshops in China and India. They might not always be the best but they have two major advantages – cheap electricity and labour costs,” the source said about Asian production facilities.
This excludes nickel pig iron, an often debated and sometimes envied stainless steel raw material that only China has access to at present.
But the source dismissed the raw material.
“Everyone talks about nickel pig iron but it’s nonsense really. It shouldn’t really be a factor because there’s plenty of nickel around,” he argued.
But the nickel market was not without its own problems, he reflected.
“It's overpriced; a fair price would be $17,000-18,000 per tonne. At that price there might be more demand,” he said.
The three-month official price on the London Metal Exchange on September 20 was $21,175/200 per tonne.
“If you want to know why nickel prices are so high it's because there’s too much money lying about," he continued.
"There’s no interest in other markets [equities], so the only thing to do is to buy into commodities. It has nothing to do with physical demand,” he said.
The LME was no longer a hedger’s market but a gambler’s market, he added.
“It’s all about technical investing now, but I keep an eye on it of course,” he said.
Drawing comparisons between the Asian stainless steel market and that in Europe is difficult because they operate on different levels, the merchant said.
“The system over there [in Asia] is a little different; [in China] they have different systems,” he said.
“Over here, if we want to build a new plant it can take years to pass funding, planning, and environmental regulations,” he said.
The time needed to build the same project in Asia would be a fraction of that, the merchant said.
The merchant also dismissed the notion that consolidation was a way for the European stainless industry to deal with its growing number of issues.
“It would be the wrong thing to do. I don’t believe in consolidation. The shareholders of the existing companies are losing money every year; they do not want to continue funding failures," he said.
“Think of it this way: if stainless steel had made a lot of money for Mr Mittal, he wouldn’t have separated it from the main company,” he said, referring to ArcelorMittal’s former stainless steel division Aperam, which was spun out of the steel major and subject to an initial public offering in early 2011.
There is one possibility yet to be explored in depth: the possibility of Chinese companies buying up stakes in European producers, he said.
“I hope a Chinese company will go down that track. If they do, they will solve some of the problems they currently have with exports into the EU,” he added.
“If that were to happen then, finally, the stainless steel industry in Europe will be reduced to just a few participants: perhaps Outokumpu, Acerinox, and maybe one of the German firms,” he concluded.
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