Three quarters of strong growth in nickel prices come to an end despite shrinking LME stocks.
Compared to early September when nickel prices for the year to date were up more than 75%, primary nickel has been lower at the LME recently even though warehouse stocks continue to be drawn down. Having started the year above 206 000 tonnes, stocks in LME warehouses were down to less than 67 000 tonnes by the end of October.
Although falling stock levels usually coincide with rising prices, that has not been the case recently. The LME three-month nickel price declined from more than US$ 18 000 per tonne in September to less than US$ 16 100 per tonne by late October.
The outflow of nickel stocks from LME warehouses is likely to have as much to do with the future needs of Chinese stainless steel producers as with the current balance between the supply and demand for the metal. According to the International Nickel Study Group, the global nickel supply deficit is expected to ease from 144 000 tonnes in 2018 to 79 000 tonnes in 2019 and 47 000 tonnes in 2020.
At the same time, Macquarie Research expects Chinese stainless steel production to rise from 26.7 million tonnes in 2018 to 29.5 million tonnes in 2019 and then 30.1 million tonnes in 2020. All other things being equal, continued nickel supply deficits and rising nickel demand from Chinese stainless steel producers could underpin nickel prices and stainless steel scrap demand in future.
For now, however, nickel price volatility, shifting trade patterns, and slowing global manufacturing output remain significant sources of concern for stainless steel scrap market participants.
According to figures from the International Stainless Steel Forum, stainless steel production in Europe during the first half of 2019 declined 4.9% compared to the first half of 2018 to less than 3.75 million tonnes.
The ISSF also expects total stainless steel consumption in Europe/Africa to fall 5.7% in 2019 before rebounding by a modest 0.4% in 2020. At the same time, elevated competition from Asian stainless steel imports, signs of slowing European manufacturing output and heightened political and economic uncertainty have undercut some of the enthusiasm generated by this year’s upward price trend.
In addition, the disconnect between primary nickel, stainless steel, and stainless steel scrap prices has complicated stainless market conditions in the West.
This article is a preview of the latest nickel & stainless market report by Recycling International.
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