Stainless Steel Demand in Asia to Climb as Posco Seeks to Cut Nickel Usage

Nov. 26 -- Posco, the world’s second-biggest maker of stainless steel, expects demand from plant builders and automakers in Asia to climb next year. The company is also seeking to cut its use of nickel because of volatile prices."

"As the economy recovers, we expect a better market environment and improvement in profitability next year,” Suh Young Sea, a senior vice president of the Pohang, South Korea- based mill, said in an interview. Output this year may rise to about 1.8 million metric tons from about 1.4 million tons last year, he said. He didn’t give a 2011 forecast.

Construction of petrochemical and seawater desalination plants will increase demand for stainless steel, Posco said. Global production may grow to 32.7 million tons next year, from an estimated 31.2 million tons this year, according to Alloy Metals & Steel Market Research.

The mill sells about 60 percent of the metal in South Korea and exports the rest to countries including Japan, Suh, who’s in charge of marketing and strategy for stainless steel, said yesterday in an interview in Seoul. Demand in Southeast Asia remains ‘solid’, he said.

Posco, which last month cut its full-year profit forecast by 7 percent, has fallen 27 percent this year, underperforming a 15 percent gain in the local benchmark Kospi index. The shares were little changed at 452,500 won at 9:34 a.m. in Seoul.

South Korean builders may win orders worth about $70 billion overseas this year, surpassing an initial target of $60 billion, the Korean government said Nov. 14.

China’s stainless-steel production may rise 13 percent to 11 million metric tons this year, according to Beijing Antaike Information Development Co., a state-owned metals and mining research company based in the capital city.

Reduce Nickel

Posco is seeking to reduce the amount of nickel it uses in making stainless steel because of price fluctuations, Suh said. Nickel is the second-best performer on the London Metal Exchange this year, rising 23 percent, on rebounding demand from stainless-steel mills, led by China, the biggest producer. The mills are the world’s biggest users of the metal.

"It was a very tough year,” Suh said. “Demand recovered to some degree this year as you can see from higher operating rates and higher output, but profitability didn’t fully get back on its feet because prices didn’t catch up with nickel gains.”

Posco, which can produce as many as 2 million tons a year of stainless steel, this month raised local prices for a third straight month. Stainless steel generated 13 percent of the company’s total revenue last year, according to a company filing.

'Too Much’

"The high volatility of nickel prices casts too much uncertainty over business management,” Suh said. “You will see increasing efforts by mills to reduce impact of nickel prices on stainless steel in various ways.”

Posco’s sales from stainless steel dropped 12 percent to 3.5 trillion won ($3.1 billion) last year from 2008 after demand slumped, according to a company filing.

The company will increasingly focus on so-called 400-series stainless products, which use ferrochrome as a raw material, and other products that use less nickel, he said.

Posco ranks the second-biggest stainless steel mill by 2009 output, coming after China’s Taiyuan Iron & Steel Group Co. and followed by Taiwan’s Yieh United Steel Corp. and Germany’s ThyssenKrupp AG, according to the website of Chinese researcher Mysteel.com.