On the cusp of the new year, the Outokumpu-Inoxum merger was completed and the new Outokumpu – with ThyssenKrupp holding a 29.9% stake – began operations on December 29.
Although consolidation in the European stainless market is seen as necessary by all players, the full effect of the merger on the industry is yet to be seen, market sources said.
“In theory, the Outokumpu-Inoxum merger should bring stability, but whether it actually will is hard to say,” one Danish stockholder said.
A second Danish stockholder added: “I don’t expect the Outokumpu-Inoxum merger to have a big effect in 2013. It is a huge merger and I think it will take years to get it under control.”
The effect of the new Outokumpu on the market will largely depend on the sale of Acciai Speciali Terni (Terni) as part of the European Commission’s (EC) approval of the merger.
Recent media reports of Luxembourg-based producer Aperam expressing interest in the mill are unlikely to be accepted by the EC, market sources said.
“I don’t think the EC will allow Aperam to buy Terni as [it was really] looking for a new player in Europe,” one analyst said.
But a sale to a non-European company could increase overcapacity in the market.
“If [Terni] falls in the hands of a non-European player, they could increase volumes which could bring prices in Europe further down,” the analyst added.
Although producers from Asia have been said to be most likely to be interested in a foothold in the European market, few are expected to want to spend money as Europe is seen as a low priority.
Also, any Asian player will find it difficult to access the market with just ownership of a mill, the analyst said.
“They need a way to penetrate the market, through service centres. But Asian players are not willing to start service centres in this climate,” he added.
The rise in nickel prices since the start of the alloy surcharge system has meant that the alloy surcharge of grade 304 stainless steel has been making up a much larger proportion of the effective price, making alloy volatility more of an issue.
Although the alloy surcharge also covers volatility in molybdenum and chrome on top of nickel, the volumes of nickel needed to make stainless are greater, making the influence of its price on the London Metal Exchange also greater.
A debate on a possible system was discussed in September at Metal Bulletin’s 11th Stainless and Special Steel Summit in Stockholm, Sweden, but disappeared into the background as the likelihood of the Outokumpu-Inoxum merger gained momentum.
Now the merger has happedned, stockholders and distributors are eager to renew discussions on the surcharge system, market sources said.
“The whole industry is suffering [and] overcapacity problems are not being solved,” the second Danish stockholder said.
“Ideally, the base price should make up 75% of the effective price and the alloy surcharge 25%,” he added.
Most market sources agree with a rise in the trigger prices currently included in the base prices of finished stainless products.
These trigger prices mean that the surcharge is only applied when the price of a base component in raw materials exceeds an agreed level. The levels differ for nickel, chrome, molybdenum and stainless scrap up to a certain price level per tonne.
The outlook for base prices for grade 304 finished stainless steel products remains uncertain, market sources said.
Both long and flat product are expected to continue to face overcapacity issues stemming from Europe's wider economic problems.
Long products, such as 304 bright bar, will continue to be particularly affected by cheaper Asian import prices, market sources said.
“There are more intruders on the import side [for longs than flats], penetrating 20-30% of the European longs market and 40% in the bright bar market,” the analyst said.
On the flat product side, 304 2mm cold rolled sheet base prices will be heavily affected by the outcome of the Terni sale.
“[On the flats side] Acerinox, Aperam, Outokumpu-Inoxum will all need to reduce capacity. This is the right way to get supply in line with demand. Base price rises could then maybe go up, but then there is the pressure from imports; it is a tricky situation,” the analyst said.