Acerinox SA, the world’s biggest stainless-steel maker, expects to make its first profit since the second quarter last year as European and U.S. customers replenish dwindling stockpiles.

 

Acerinox is operating at 75 percent to 80 percent of record capacity, Chairman and Chief Executive Officer Rafael Naranjo said Sept. 18. Production in the three months through September will be “much better” than in previous quarters, he said.

 

“In the third quarter we will change from red to black numbers,” Naranjo said in an interview at his office in Madrid, confirming a forecast made in July. “We have some signs, mainly in the U.S., that final demand is improving.”

 

Naranjo is betting that demand will continue to recover in the U.S. to help Acerinox resume profit growth. To fuel future earnings, the company is building a plant in Malaysia to add to facilities in Spain, the U.S. and South Africa. Steel companies from ArcelorMittal to OAO Novolipetsk Steel are reopening mills and furnaces as carmakers and construction companies, recovering from the worst slump since World War II, restock inventories.

 

“The recovery has started for us,” Naranjo said. “The question is to which extent it will continue as it is now, or whether it will improve, or not be sustained. We don’t have the answer for that.”

 

The company may soon announce an increase in prices for its base products in the U.S., the executive said. In Europe, Acerinox wants larger companies such as ThyssenKrupp AG to lead the market in raising prices, he said. Acerinox increased base prices twice in Europe this year and its rivals followed suit, he said.

 

Nickel Rally

Acerinox has risen 34 percent in Madrid trading this year, trailing a 56 percent increase in the Bloomberg Europe Steel Index.

 

An increase in nickel prices in May prompted distributors to buy stainless steel, he said. The company’s orders for October closed with “volume” and now it’s negotiating contracts for November.

 

The company doesn’t have long-term commitments with customers to protect itself from the swings in the price of nickel, used to make stainless steel. Nickel rallied as high as $51,800 a metric ton on the London Metal Exchange in May 2007 and slid to as low as $9,050 a ton in December 2008. It traded on Sept. 18 at $17,155 a ton.

 

When nickel falls, distributors tend to delay orders of stainless steel while the opposite occurs when prices rise.

 

Acerinox posted a first-half loss of 255 million euros ($376 million). The company is the world’s largest stainless steel producer based on its 2008 output. –Blooberg.com