Stainless: It’s More Than Flatware

We are all familiar with the term stainless steel, but to the average person it is comprised of the flatware we eat with, our kitchen appliances and those very bright countertops we see in restaurants.   What makes stainless, stainless?  There other uses and what drives its value is beyond the knowledge of most of us.    Stainless is often part of the inventory at metals distributors and demystifying stainless might give potential lenders more comfort in Lending into this somewhat volatile area.

In short, stainless is regular carbon steel with alloying elements added to make it resistant to rust and to change its mechanical properties.   Stainless steels tend to be harder and stronger than regular carbon steel because they are alloyed with nickel and chrome.   

Like all metals, stainless has multiple “grades” or types established by the American Iron and Steel Institute (AISI) or other agencies.  A metallurgical “grade” defines a type of carbon steel or stainless steel and specifies the minimum and maximum percentages of a variety of alloying elements, such as iron, copper, aluminum, chrome nickel, titanium, etc.    The addition of various alloys can makes steel harder or softer, increase strength, improve ductility and formability, or improve resistance to corrosion, improve resistance to cracking in extreme cold, and hundreds of other characteristics.   Metallurgical grades are typically represented by an agency designation and a number such as ASTM 301 or UNS S30100, and the products produced in China, Japan and European are similar or identical metal grades to those used in the U.S., although they are often referred to under other names or designations.

While the number of stainless steel metallurgical grades includes hundreds of identifiable grades, and includes duplex grades, martensitic grades and heat resistant grades, the industry is dominated by two common grade families Ferritic and Austenitic.  

Ferritic Stainless, sometimes referred to as magnetic stainless, is comprised of metallurgical grades designated between AISI 400 and AISI 499 and referred to as the “400-series”.   These grades are primarily alloyed with chrome along with limited additions of nickel and molybdenum to provide corrosion protection and mechanical properties.    Ferritic stainless is used in appliances, automobile exhaust systems and trim pieces.   Grades 409 and 430 are the most commonly used Ferritic Grades and are similar in chemical make-up.

Austenitic Stainless, sometimes referred to as non-magnetic stainless, is comprised of metallurgical grades designated between AISI 300 and AISI 399 and referred to as the “300-series”.   These grades are primarily alloyed with nickel and chrome to provide its increased corrosion protection and mechanical properties.   Grades 304 and 316 (and modified versions 304L and 316L) represent the most common austenitic grades.   316 stainless has higher levels of nickel and chrome than 304, and contains molybdenum, and is therefore always 30% to 60% more expensive than 304 stainless.  The 300-series is used in harsher environments such as food and chemical processing, desalination plants and other salt-water applications.

The same 300-series and 400 series metallurgical grades are used in bars, plates, coils, tubes and other stainless products.   Unlike steel products which have one price, stainless cost is typically comprised of a base price which changes slowly over time, and alloy surcharges that are published monthly by the major stainless producers and change monthly.     Alloy surcharges are dominated by the cost of the three key alloys used in stainless; nickel, chrome and molybdenum.   

The recovery values for stainless products are based, in-part on replacement cost; which is based in large part on changes in the alloy surcharges.   Decreasing nickel values would typically signal a decrease in the cost of new stainless products and a loss in value of existing stainless inventories, and the reverse would be true in a period of rising nickel values.    The savvy lender may want to have a basic understanding of the types of stainless he and lending against and should likely track changes in the market values of key alloys in order to understand changes in recovery values.    If values seem to be changing rapidly the savvy Lender should probably call Hilco.