Uncertainty for global industry despite nickel price rise

Among the major base metals in 2019, nickel has continued to outperform thanks in part to tighter Indonesian restrictions on unprocessed nickel ore exports and expectations of improved demand for nickel in electric vehicle batteries.

This article is based on our magazine’s latest nickel & stainless market analysis.

In early September, LME three-month nickel prices briefly surged above US$ 18 000 per tonne and later in the month were still up approximately 60% for the year-to-date. But, as with other commodities, rising primary nickel prices have not necessarily translated into improved market conditions for the stainless steel industry or stainless steel scrap processors.

For the stainless steel industry, excess production capacity in Asia has been of particular concern. Macquarie Research reports that ‘on the whole, 2019 has been an awful year for the stainless steel industry, with weak to negative margins for stainless mills amid declining demand ex-China, over-capacity and over-production’.

As production ramps up in Asia, market analysts are projecting reduced stainless steel output in Europe and the US this year, with knock-on impacts for stainless steel scrap consumption and pricing.

Worries in Europe

European stainless steel melt shop production declined 5.7% year-on-year in the first quarter of 2019 according to the International Stainless Steel Forum while Macquarie Research forecasts European stainless steel output will decline 5% overall in 2019 to less than seven million tonnes.

Coupled with the recent Brexit developments in the UK and indications of contracting German manufacturing output (the IHS Markit/BME Germany Manufacturing PMI came in at 43.5 in August), ‘uncertainty’ remains the buzzword in Europe.

Joost Van Kleef from Oryx Stainless in the Netherlands reports in the latest BIR World Mirror on Stainless Steel & Special Alloys that import competition is another challenging factor in Europe, as ‘penetration of finished stainless goods into the EU is at a record high of more than 30%’.

He added: ‘Not only the import volumes but also the price levels offered remain a threat.’ Weaker auto production in Europe, along with falling ferrous and chrome prices, have also presented challenges. As a result, according to Uwe Dierkes of Siegfried Jacob Metallwerke, European market conditions are not expected to improve before the first quarter of 2020.

Challenging US conditions

Stainless steel scrap prices in the United States have not kept pace with the rise of exchange-trade nickel prices. In the Eastern US, published prices for 304 solids and clips recently advanced to more than US$ 1 275 per gross tonne delivered to the mill but that was still eclipsed by the gains in primary nickel prices. Diminished export demand for US stainless steel scrap has only complicated matters.

According to official US trade statistics, stainless steel scrap exports during the first half of 2019 declined 30% when compared to the first half of 2018 to 230 521 tonnes as shipments to China shrank 98% lower, alongside weaker demand from Canada, Pakistan, Vietnam and South Korea.

Although trade flows improved with Taiwan, India, Mexico and others, these gains were insufficient to offset the losses to other markets. As trade with China has abruptly declined, stainless steel trade flows between the US, Canada, and Mexico have become increasing important.

According to the International Stainless Steel Forum, trade flows of stainless steel products within the NAFTA region reached 570 000 tonnes last year.

You can read the full market analysis here.