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Markets struggling as economies contract

Gloomy forecasts for global economic growth and changing production trends weigh heavily on scrap processors and traders.  

The International Monetary Fund expects the global economy will contract 4.9% in 2020, against its previous forecast in April of 3%. The IMF also sees advanced economies, including the USA, EU and Japan, being especially hard hit with their combined economic output expected to decline 8% this year. Weaker scrap metal generation and demand continue to pose challenges for recyclers.

Lacklustre nickel prices

Nickel prices have underperformed compared to other base metals this year, creating headaches for stainless steel market participants. While the LME three-month nickel price has bounced off the US$ 10 865 per tonne bottom seen in late March with recent trading around US$ 12 800 per tonne, LME nickel prices are still down 9% over the first six months of 2020.

Meanwhile, nickel stocks in LME warehouses have surged from just over 64 000 tonnes in November 2019 to more than 234 000 tonnes by late June.

According to the International Nickel Study Group, the global refined nickel market swung to a 53 900 tonne supply surplus during the first four months of this year, compared to a 23 500 tonne supply deficit during the corresponding period in 2019.  Diminished demand from the electric vehicle market has been widely cited as one source of weakness.

Indonesian impact

Another complicating factor has been greater Indonesian nickel pig iron (NPI) production. Macquarie reports that, despite the reduced availability of primary nickel units globally, the impact of the Indonesian [nickel] ore ban on the market ‘has been wholly neutralised by a major acceleration in plans to ramp up NPI production in 2020 and onwards’.

Macquarie projects Indonesian NPI output will grow from 570 000 tonnes this year to 750 000 tonnes in 2021. As a result, a number of commodity market analysts have been cautious with their nickel price forecasts.

At the Bureau of International Recycling’s Global eForum on Stainless Steel & Special Alloys in June, Nathalie Scott-Gray from INTL FC Stone predicted that the LME nickel price would average U$12 452 per tonne in 2020, down 11% from the 2019 average.

Stainless: market uncertainty

Not surprisingly, the global economic downturn and coronavirus lockdowns have impacted practically every segment of the stainless steel industry, from reduced manufacturing output that has weighed on prime scrap generation to reduced demand from the automotive, energy, and construction industries. 

Interestingly, Andy Home from Reuters reports that even the downturn in the hospitality industry has important implications for stainless and nickel market balances: ‘A wave of restaurant closures in the developed world would generate a surge of unwanted cutlery. If 20% of restaurants closed, it would translate to around 80 000 tonnes of stainless steel scrap containing 24 000 tonnes of nickel’.

Given the global slump, Scott-Gray is projecting total stainless steel demand will drop 12% in the second quarter of 2020 to 11.9 million tonnes. Stainless production continues to shift away from the West and towards Asia. Macquarie reports that China and Indonesia together now produce 65% of global stainless steel output, up sharply from the…

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