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MARKET ANALYSIS

Markets in disarray compound
weak New Year
The COVID-19 pandemic is heavily impacting all nickel and stainless steel supply

chains -when they were already facing weaker prospects.

was trading at a small premium to
LME prices a year ago but was now
selling at discounts of around US$ 2
000 per tonne.
The market for ferrochrome, another
key stainless steel raw material, has
also been heavily impacted by supply
disruptions due to the shutdown in
South African operations. Reuters
reports that major ferrochrome pro-
ducer Samancor Chrome declared
force majeure because of South
Africa’s coronavirus lockdown, follow-
ing similar announcements by chrome
and platinum producer Tharisa and
the Glencore/Merafe Resources JV
ferrochrome smelter in Rustenburg,
South Africa. Not surprisingly, given
the upheaval in raw material inputs,
declining asset prices and falling steel
production and demand, stainless
steel and stainless scrap prices have
come under pressure this year, with
latest Fastmarkets’ monthly assess-
ment for cold-rolled 304 stainless
steel sheet falling 2.5%.

and supply chains globally. Moody’s
therefore foresees a significant drop
in Outokumpu’s stainless steel deliver-
ies over the next few quarters, pres-
suring earnings and free cash flow
generation, which will likely turn nega-
tive this year in Moody’s view.’

UPHEAVAL ACROSS RAW
MATERIALS
Supply disruptions across the various
raw materials markets are further
complicating the outlook for the nick-
el and stainless steel industries. With
respect to nickel production, at least
two mining companies in the
Philippines have recently announced
indefinite closures, while Macquarie
reports that two Canadian nickel
mines (Glencore’s Ragan mine and
Vale’ Voisey’s Bay mine) have ceased
operations. Those supply disruptions
add to the restrictions on primary
nickel supply following Indonesia’s on-
going export restrictions on unpro-
cessed nickel ore.
In response to the rapidly shifting
nickel supply and demand dynamics,
the LME official three-month nickel
price has dropped from more than
US$ 14 000 per tonne at the end of
2019 to less than US$ 11 200 per
tonne in late March. Other stainless
steel raw material prices have come
under even greater pressure. As
Macquarie reports, ‘the LME price is
only relevant for a certain portion of
sales, however, with 65+% of nickel
use now being in the form of non-LME
deliverable nickel-iron units (ferronick-
el, nickel pig iron and nickel in stain-
less steel scrap)’. It said ferronickel

68

From nickel and chromium mining to
stainless steel scrap supply and
demand, stainless steel production
capacity, and demand from end-use
sectors including transportation, ener-
gy, and household appliances, markets
are in disarray. The coronavirus crisis
impacts come on top of an already dif-
ficult start to 2020 when nickel and
stainless steel prices were already
under pressure, and with stainless steel
production continuing its migration
from the West towards Asia.
As global economic activity in
response to the pandemic has con-
tracted sharply – the International
Monetary Fund, for example, is now
predicting a 3% downturn in the glob-
al economy this year – steel produc-
tion has also been shuttering. In the
United States, the American Iron and
Steel Institute reports that the US
steel mill capacity utilisation rate
plunged to 56.1% for the week end-
ing 11 April, down from 81.3% a year
earlier. Steel mills in both the US and
Europe shut down production capaci-
ty in response to the pandemic when
stainless steel production was already
on a downward trajectory.
According to the latest figures from
the International Stainless Steel Forum
(ISSF), stainless steel melt shop pro-
duction in Europe declined 7.9% in
2019 to just over 6.8 million tonnes
while production in the United States
fell 7.6% last year to 2.593 million

The floor level seems to hold!
Similar to one year ago the support level at 11,000 $/t
seems to be robust. Also in China the NPI prices are sta-
ble since the end of March based on relatively small Ni ore reserves at
Chinese Ports. But, the subdued stainless steel demand in Europe, USA
and major Asian markets will limit the Ni demand through out Q2. Thus, as
long as the LME stocks remain stable we see no reason for a sustainable Ni
price increase.

35,000

32,000

29,000

26,000

23,000

20,000

17,000

14,000

10,000

8,000

5,000

tonnes. In contrast, stainless steel pro-
duction in China climbed 10.1% in
2019 to 29.4 million tonnes, according
to the ISSF estimates.

FACILITIES SHUT DOWN
Stainless steel output in both the US
and Europe is expected to decline fur-
ther this year due to coronavirus-relat-
ed plant shutdowns and reduced
automobile and end-use demand for
stainless steel products. In Europe,
Luxembourg-based stainless steel pro-
ducer Aperam, which has two produc-
tion facilities in Belgium, three in
France and one in Brazil, announced it
was temporarily halting production at
some of its European production lines.
In the United States, a number of
operations are cutting back on pro-
duction, including Allegheny
Technologies’ Midland plant in
Pennsylvania. As a result of the market
downturn, credit rating agencies are
starting to cut their ratings for major
steel producers. On 31 March,
Moody’s downgraded Finland-based
stainless steel producer Outokumpu’s
corporate family rating from B2 to B3,
with the outlook downgraded from
stable to negative in light of an
unprecedented credit shock.
According to their press release,
‘Moody’s now expects conditions to
further worsen this year amidst the
fast spreading coronavirus curbing
demand and disrupting production

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