No tarnish on prospects for stainless steel

The stainless steel industry in China will continue to expand during the country's 12th Five-Year-Plan (2011-15) as a result of incentives stemming from ongoing urbanization and construction, experts said on Wednesday.

Although the steel industry has had to contend with an increase in the cost of raw materials and many domestic steel mills are faced with losses in the first quarter of this year, specialty steel companies, such as makers of stainless steel, are still doing well.

"As the biggest stainless steel producer and consumer in the world, China will have huge market potential in the coming years," said Li Cheng, honorary chairman of the Stainless Steel Council of China Special Steel Enterprises Association, during a forum held by the Nickel Institute, a nonprofit international organization.

Companies in the nickel and stainless steel industry must keep a balance between resources and supply, said Kevin Bradley, president of the institute, which represents the interests of 26 companies that produce more than 75 percent of the world's nickel each year.

According to the council, 3.43 million metric tons of stainless steel were produced in China in the first quarter of the year, 357,000 tons more than in the same period last year.

Also during the first quarter, the country used 2.77 million tons of stainless steel, 12 percent more than in the same period of 2011.

Despite the production increases, industry insiders said China still lacks the high-end stainless steel products that foreign companies are now looking to produce as they try to expand their businesses in China.

Outokumpu Oyj, a Finland-based stainless steel producer, plans to invest more in the Chinese market, especially in ways related to energy and construction.

"We believe that there is a double-digit growth rate annually in the high-end stainless steel market in China," said Mika Seitovirta, chief executive of the company.

He said up to 11 percent of the company's revenues come from Asia, and China contributes a large part of that.

Outokumpu is in the midst of acquiring Inoxum group, the stainless steel unit of ThyssenKrupp AG, a diversified industrial group.

Combining Outokumpu and Inoxum will give the resulting company the capacity to produce 3.5 million tons of cold-rolling steel a year, Seitovirta said.

He said the transaction will be completed by the end of this year. By then, Outokumpu's share of the global market for stainless steel will increase from less than 7 percent now to around 14 percent.

In 2001, China was home to 3 percent of all steel production in the world. By 2010, the number had increased to 36 percent.

The country's greater demand for stainless steel has increased its consumption of nickel, the most important metal in the production of stainless steel.

Last year, China consumed 691,000 tons of nickel, 85 percent of which was used in making stainless steel, Li said.

Statistics show that an increase in the global demand for nickel has been driven by Chinese consumption. The biggest consumer of nickel, China has also seen its output of that metal increase in past years, going from 103,000 tons in 2005 to 192,000 tons in 2011.

Jinchuan Group Co Ltd, a Chinese producer of nonferrous metal, has become the third largest producer of nickel in the world measured by output, producing 127,000 tons of the metal in 2011.