LONDON (Reuters) - Chinese-owned Tsingshan, the world’s top stainless steelmaker, is prepared to offer fixed-priced long-term contracts that have no alloy surcharge - a move that could change the way the metal is priced globally, an industry veteran told Reuters.
Tsingshan, which can produce about 8 million tonnes or 15 percent of global stainless output, could upend the stainless industry with this move, as rivals may be forced to drop their surcharges and offer long-term contracts in order to compete.
Tsingshan has depressed global prices since it ramped up its 3 million ton per year Indonesia unit last year. Tsingshan Indonesia has captive power and mines its own nickel and chrome, making it an extremely low cost producer.
But the private Chinese company could further dislodge the market with its plan to take price volatility out of stainless steel - priced in the West using a base price and an alloy surcharge for inputs nickel, chrome and iron.
“The chairman of Tsingshan told me he would be willing to sell slabs or hot-rolled coil under fixed-price long-term contracts,” said Markus Moll, managing director of steel consultancy SMR.
Tsingshan declined to comment.
The company could have 10 million tonnes of capacity by 2020, almost 20 percent of global demand, according to industry consultants CRU.
Moll said Tsingshan’s offer of fixed long-term pricing might even, in the long run, force rivals to reroll the company’s slab to produce benchmark stainless grades rather than making the metal from scratch and adding a volatile alloy surcharge.
Tsingshan’s exports remain focused on Asian markets for now, though earlier this year it signed a joint venture deal with U.S.-based Allegheny Technologies, under which ATI imports Tsinghsan’s Indonesian slab and processes it.
Jim Lennon, managing director of Red Door Research, said Tsinghsan slab exports in Indonesia are priced at around $1,500 a ton while the finished product in the United States costs around $3,000.
In China meanwhile, Beijing has launched an anti-dumping investigation into stainless imports, focused on Indonesia.
About two-thirds of China’s stainless imports came from Indonesia last year, up from 5 percent in 2016 and zero in 2015, helping to push Chinese imported stainless prices down 23 percent.
In the EU, benchmark 304 cold-rolled stainless base prices have fallen around 22 percent in the year to September, according to consultants MEPS.
Roeland Baan, the CEO of Finnish stainless producer Outokumpu said EU stainless imports from Asia have risen some 30 percent this year as Tsingshan’s exports to China surged, and China in turn shifted material to south-east Asia.
Outokumpu’s shares have dropped nearly 40 percent since the Tsingshan ramp up.
“Trade protections could be a simple solution (to increased Tsingshan supply) but it’s quite difficult if (there is) genuine low cost production. It’s hard to say (Tsingshan) are doing anything other than (that),” said Mark Beveridge, a senior consultant at CRU.
Scores of countries have anti-dumping duties on stainless steel, mostly from China, which produces and consumes about half the world’s output.
Undeterred, Tsinghsan is looking to ramp up while firms such as China’s Delong Holdings are looking to follow its model and build integrated stainless plants in countries with rich nickel deposits such as Indonesia and the Philippines.
Additional reporting by Muyu Xu in Beijing and Wilda Asmarini and Fergus Jensen in Jakarta; editing by David Evans