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The knock-on effect of the Outokumpu-Inoxum merger and the alloy surcharge system are set to be key issues for Europe's stainless steel sector in the coming year.
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
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
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
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
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
"The whole industry is suffering [and] overcapacity
problems are not being solved," the second Danish stockholder
"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
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
Long products, such as 304 bright bar, will continue to be
particularly affected by cheaper Asian import prices, market
"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.
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17th September 2015