As with so many commodities globally, decisions made in China have been having a major impact on the pricing, supply and demand for stainless steel and the raw materials that create it.
Since the turn of the century, China’s stainless steel production has been increasing steadily and rapidly. Initially, this created robust demand for stainless steel scrap and put upward price pressure on nickel, finished stainless steel and stainless scrap.
The situation has changed dramatically in the past several years, owing in part to China’s slowing economic growth rate, but also because of its choice of nickel pig iron as a feedstock over imported stainless steel scrap.
For scrap processors in the United States and Europe, these conditions have led to a less robust end market in which to sell at the same time that lower pricing has yielded less stainless steel and alloyed scrap flowing across inbound scales.
A world of hurt
At the 2016 Bureau of International Recycling (BIR) World Recycling Convention, held in Berlin in late May and early June, speakers and panellists at the BIR’s Stainless Steel & Special Alloys Committee meeting seemed to agree on many of the specifics.
A primary point of agreement was that recyclers involved in the stainless steel market are suffering from too little scrap and too much new product output in China.
Jonathan Bower of the United Kingdom branch of Germany-based ELG Haniel Metals provided an update of market conditions in the alloyed steel scrap markets based on reports from BIR committee members from around the world.
Bower and other contributors noted that the production of stainless steel globally is steady and rising, but much of the increased output is in China, where mills melt very little scrap. The other predominantly negative trend is that recyclers are receiving inadequate supplies of scrap to feed mills in the other parts of the world that do want it.
In a panel discussion at the meeting, Barry Hunter of United States-based Hunter Alloys LLC said regarding the “universal lack of [alloyed] scrap,” that he had “never seen it like this” in his 50 years in the business.
Low copper and ferrous scrap prices (and low nickel prices) in late 2015 and early 2016 have combined to staunch flows into scrap yards around the world, according to reports from several BIR Stainless Steel & Special Alloys Committee members.
On the Chinese production side, economist Jason Schenker of Prestige Economics, Austin, Texas, said he feared mills in that nation would continue to over-produce. “I’m very sceptical that China can absorb [its stainless steel output]. This trade issue is huge. I just don’t think they have enough of a domestic market to sell into. They may continue to sell at a loss on the world market.”
BIR panellist Salvatore Pinizzotto, director of market research and statistics at the Lisbon-based International Nickel Study Group (INSG), said one bright spot is little new primary nickel production is coming online or scheduled to in the next several years.
“There is a 10-year gap in new production,” he stated. Pinizzotto also said the majority of the world’s remaining nickel ore reserves are costly to access. There are “plenty of nickel reserves available to the world,” he commented, but “the problem is to get this nickel out of the ground.”
It may not feel like that to recyclers in 2016, when Chinese mills using Filipino nickel pig iron are putting a lid on stainless scrap demand. A new president in the Philippines could prompt a measure of sudden change to that situation, however. (See sidebar.)
Coaxing out more scrap
For recyclers, the difficulties in the stainless market in 2015 and 2016 have been tied to pricing and to volume.
With nickel as its predominant alloying element, stainless steel and scrap prices often are tied to nickel prices on global metal exchanges. That being the case, the last 18 to 20 months have not been kind.
In December 2014 nickel was trading for nearly $16,000 per metric ton on the London Metal Exchange (LME). That was off from a May 2014 peak of more than $19,000 per metric ton, but relatively close to its historic high.
Subsequently, nickel prices have drifted downward, hitting the $12,000-per-metric-ton range in mid-2015 and falling below $9,000 per metric ton in late 2015 and early 2016.
Holding stainless steel scrap inventory that is declining in value can present one problem for recyclers, but not being able to obtain adequate supply to fill orders or generate cash flow is another. According to Hunter, that was a foremost obstacle in the first half of 2016.
Recyclers that lured stainless scrap into their facilities should find a waiting market, according to United States Geological Survey (USGS) statistics. USGS says stainless mills and foundries consumed some 1.34 million tonnes of nickel-bearing scrap in 2015. They did this while producing more than 1.8 million short tons of stainless steel, representing an 8% increase from 2014 output.
To what extent this can improve circumstances for the stainless scrap market in the remainder of 2016 may depend on both domestic and global factors.
Reversal of fortune
For the price of nickel and nickel-bearing scrap to rise, buyers and sellers of the metal will have to be convinced that supply is not greatly outpacing demand.
Pinizzotto of the INSG told BIR delegates he believes the global market is lining up in the right way.
“Overall, we see a kind of small supply deficit for 2016 of about 49,000 metric tons,” he commented. “We hope it is the first of many deficits to come, and then hopefully a better nickel price.”
The return of Chinese mills to the global stainless scrap market to their 2000-to-2009 levels does not seem to be in the cards, so relief for the stainless scrap market in North America may be tied instead to the global primary nickel supplies and pricing.
It will be hard for nickel and stainless steel to achieve a higher price, Pinizzotto said, “until this high level of inventory is reduced in a constant way.”