Stabilizing the Industry

Transcription

1 Stainless Steel Scrap Stabilizing the Industry September, 13th 2012 Tobias Kämmer M i Di t Managing Director Oryx Stainless

2 I. The nature of stainless scrap as a commodity II. The importance of stainless scrap for the stainless steel production III. Current market situation and implications

3 The circle of life Different prices at all stages Nickel LME price Stainless base price Stainless scrap Source: UNEP 2012: Recycling Rates of Metals Knowing the demand/supply at each stage gives benchmark prices. 1

4 The historical growth of stainless production and consumption is the basis for the availability of stainless steel scrap Internal scrap External scrap Internal scrap ( new scrap ) Industrial scrap ( new scrap ) Reclaimed scrap ( old scrap) stainless production ~100% rr stainless consumption ~100% rr historical consumption 82-90% rr Recycling time t up to 3 month appr. 6 month up to 50 years 2

5 The scrap puzzle 1/3: Historic production (in kmt) Stainless crude steel prod uction ISSF Stainless crude steel production: ~6,0% CAGR p.a. 3

6 The scrap puzzle 2/3: current stainless steel end use by segment Transportation ~11% others ~3% Consumer durables ~38% Building & construction ~16% Industrial uses ~32% SMR 4

7 The scrap puzzle 3/3: historical consumption, lifetime, recycling rate Main application sector Use of finished SS Average life To landfill Collected for recycling Total as SS Building 16% 50y 8% 92% 95% Transportation 21% 14y 13% 87% 85% Industrial machinery 31% 25y 8% 92% 95% Household appliances 6% 15y 18% 82% 95% Electronics 6% - 40% 60% 95% Metal goods 20% 15y 40% 60% 80% Total 100% 22y 18% 82% 90% ISSF Stainless Steel Project 5

8 Growth of primary stainless and scrap potential 30.00% Scrap potential Stainless production (ISSF) 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% % For scrap potential looking back provides estimate of the future with stable and less volatile growth than primary production 6

9 External stainless scrap ratio in 300series production continue to increase, but China (in %) USA, Taiwan and EU with highest external stainless scrap ratios: >60% China: stagnation on low levels 10 0 EU USA Taiwan China Oryx Research 10

10 Stainless scrap availability is significantly influenced by absolute Nickel-price level (in kmt) (in USD pmt) Heinz H. Pariser commodity prices on principle influenced by supply and demand scrap availability Ni price correlation between Ni- and FeCr- and Fe-scrap price Historic: high Ni-prices, high valuation of Cr-, Ni- and Fe-units in scrap, high demand of scrap, strongly positive financial performance of stainless mills 0 13

11 Current financial performance of leading stainless producers unsatisfactory, and outlook for current FY 2012 remains grey The average base prices in Q3 expected to be lower than in Q2 The external delivery volumes expected to be significantly below Q2 volumes The Q3 results expected to be below Q2 levels On-going efficiency improvement programmes Reduction in jobs Short-time ti working Working capital reduction Inventory management Absolute inventory level Inventory turnover days to sales 14

12 External stakeholder are well aware of current situation Poor financial performance of stainless steel mills has a negative impact towards rating of raw material industry Intact success-story of stainless industry is overruled by actual financial performance Finance of accounts receivables both on-/ and off-balance is getting significantly more expensive due to risk evaluation Approval of credit limits on stainless producers increasingly difficult 15

13 Capacity, capacity-utilization, sales price and profitability, how to solve in today`s market? Business Model: volume vs. margin Description FeNi NPI Pricing & volume Customer 1 After boom years of 2005/2006/2007 significant increase in capacity on all levels of value chain: - Stainless mills - NPI Ni Stainless mill Customer 2 Customer 3 - FeNi - Ni - Scrap collection Profitability significantly dependent on absolute Ni-price level CrNi scrap NPI: If Ni-prices pick up, more NPI is available and the increased supply will pull down demand for refined Nickel 16

14 Raw material mix as main cost driver, one more aspect with increasing importance: CO 2 emissions Stainless mill profitability Product innovation Process excellence Raw material purchasing raw material mix maximization of scrap intake procurement costs handling costs Market segmentation ti Sales network Growth strategy t processing costs 17

15 Impact of the financial crisis for the SME dominated scrap industry Access to bank funding became more difficult and more expensive No differentiation is made between the segments within the steel industry Contraction of credit limits by credit insurances is affecting the purchase and sales side Closer and intensified communication with banking partners Even more volatility in the exchange markets for foreign exchange and commodities Steel industry became a segment under special control Financial crisis favors cost saving raw materials like scrap Destocking accelerated in the light of the financial crisis 18

16 Urbanization will remain the strong driver of steel and stainless steel demand Source: ArcelorMittal Growth of emerging markets due to higher urbanization. 19

17 Stainless steel remains a growth market Despite recent weakening of macroeconomic fundamentals, global stainless steel demand is expected to grow by 4-5% in 2012 Growth rates in developed countries remain stagnant or decline China and India account for about half of global stainless consumption Reform of stainless pricing mechanism to include a higher base price component which could take some volatility out Significant changes on the supply side are needed, in all parts of the world in order to increase current capacity utilization, which is on average 70-75% Further benefit from cost cutting 20

18