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Nickel & stainless: early optimism fading

On top of the effect of shaky China-US relations and the expected summer slowdown, the alarm is being raised about the massive expansion of Indonesian output.

The first quarter of 2019 provided generally supportive raw material input prices and increased steel output levels. At the London Metal Exchange, cash nickel prices were trading above US$ 13 000 per tonne in late March whereas at the start of the year it was trading below US$ 11 000. Ferrous market conditions were also generally supportive as iron ore and ferrous scrap prices advanced early in the year.

Gains pegged back

But the volatility in other stainless steel raw material prices has been more disruptive, including for cobalt. LME cash cobalt was trading around US$ 45 000 per tonne in January 2019 before dipping below US$ 30 000 in late March. Meanwhile, the gains in primary nickel and ferrous prices appeared to be running out of steam at the start of the second quarter of 2019.

Those price developments raised serious questions regarding the outlook for stainless steel scrap given the traditional summer slowdown in steel production, uncertainty regarding the trade relationship between the US and China and expanding stainless steel output in Asia.

Production upswing in Asia

According to figures from the International Stainless Steel Forum (ISSF), stainless steel production at melt shops in China increased 3.6% year-on-year in 2018 to 26.7 million tonnes while Asian stainless steel production outside of China and South Korea was up 2.1% to nearly 8.2 million tonnes last year.

The expansion in Asian stainless steel and nickel pig iron production, along with the rise of protectionist trade measures, has put additional pressure on stainless markets in the West, particularly in Europe.

According to Macquarie Research, the combined output of nickel pig iron in Indonesia and China could grow by as much as 20% year-on-year in 2019. Even so, rising stainless production in Asia also presents opportunities for stainless scrap consumption.

Pressure on European sector

Among the major stainless steel producing regions, the European stainless steel industry has experienced some of the most difficult market conditions. According to the ISSF, stainless steel production in Europe was up just 0.1% in 2018 to just under 7.4 million tonnes, the lowest regional growth rate last year.

Those disappointing numbers are reflected in the corporate results of the major European stainless steel producers. According to Outokumpu’s 2018 report, the company’s stainless steel deliveries in Europe fell 2% in 2018 to 1.547 million tonnes.

Oryx reports that European ferrochrome prices have increased recently: ‘The benchmark for deliveries of charge and high-carbon ferrochrome to Europe has risen slightly for the second quarter of 2019,’ it says. ‘This is agreed traditionally between a leading South African ferrochrome producer and one of the biggest European stainless steel producers each quarter.

Direction lacking in the US

US stainless and carbon steel production has been resilient until recently, which in turn has been good news for stainless scrap processors. According to figures from the ISSF, US stainless steel melt shop production increased 2% in 2018 to more than 2.8 million tonnes.

Thus far in 2019, figures from the American Iron and Steel Institute indicate total domestic steel industry capacity utilisation rates are running at 81.9%, up from 76.4% in the corresponding period last year. For stainless scrap processors, healthy US demand has been one of the bright spots so far this year.

The full nickel & stainless steel market report appeared in the last issue of Recycling International. You can read it here >>

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