nickel update

ThyssenKrupp May Buy Less Nickel as Price Increases (Update3)

By Helen Yuan and Yoshifumi Takemoto

May 22 (Bloomberg) -- ThyssenKrupp AG, the world's biggest stainless steelmaker, may reduce nickel purchases to cut costs as prices of the raw material rise to record highs.

The company's may increase output of nickel-free stainless steel to 35 percent of total production from 30 percent, Jurgen H. Fechter, chief executive of ThyssenKrupp's stainless steel division, said in an interview in Kyoto, Japan yesterday.

The nickel price has risen more than seven-fold in the past five years as China's economic growth fueled demand, increasing the cost of stainless steel, used in kitchenware and buildings. The price is driving companies to make nickel free, or ferritic, stainless steel and to increase chromium or manganese content.

``This kind of move will continue among stainless steelmakers globally,'' Kazuhiro Harada, an analyst at Deutsche Securities in Tokyo said by telephone. ``I don't think their need for nickel in stainless steel will go down to zero, but they will try to replace nickel as much as possible.''

London Metal Exchange nickel for delivery in three months, which rose to a record $51,800 a metric ton on May 9, gained 0.1 percent to $50,500 a ton at 5:30 p.m. in Tokyo.

``Clearly if the ratio of ferritic rises significantly, we will require less nickel but it also depends on our total volume,'' Fechter said. ``I don't believe it's a right strategy to invest in nickel because we need to maintain flexibility.''

Companies including ThyssenKrupp discussed the market outlook while attending an annual International Stainless Steel Forum meeting in Japan.

Customers `Worried'

Record prices are hurting demand for nickel-based stainless steel used in kitchenware and buildings, even as European producers have passed on part of the rising costs to customers through an alloy surcharge system.

``It becomes more and more difficult, because the customer is getting worried about the nickel prices,'' Juha Rantanen, chief executive of stainless steelmaker Outokumpu Oyj said May 20 in an interview. ``This year definitely, I assume we will buy less nickel than last year.''

Stainless steel demand this quarter would be below that of the first three months of the year as customers seek cheaper alternatives to nickel, Arcelor Mittal Chief Financial Officer Aditya Mittal said on a conference call after the company released its earnings this month.

Non-nickel products could potentially make up as much as 70 percent of stainless steel production, taking into account technical issues, Jean-Yves Gilet, vice president of stainless steel at Arcelor Mittal, said in an interview yesterday.

Rising Trend

``It is a trend that will take a long time. So if you would grow from 30 to 35 percent in the next two years, you would do a very good job,'' Fechter said.

Global stainless steel output is forecast to rise 5 percent to 29.8 million tons in 2007, after rising 17 percent last year, the International Stainless Steel Forum said yesterday.

Standard grade stainless-steel, which contains a typical 8 percent nickel, makes up 45 percent of global output of the corrosion-proof alloy, compared with 50 percent to 60 percent in past years, according to the ISSF. Duplex grades, a mixture of ferritic and standard stainless steel, represent 1.5 percent.

``Over the last four years, we've boosted the percentage of chrome-based products from 55 to 65 percent. By 2008, we'll raise this to around 70 percent,'' said Toshio Yonezawa, the president of Nippon Steel & Sumikin Stainless Corp., Japan's largest stainless steel producer said.