We rarely see such positive growth in metal prices as we did in the August MMI Price Trends Report.
All the metals we track were up save for Aluminum, which fell only 1.3%, and renewables and rare earths, which held flat. The Stainless Steel MMI increased 9% amid uncertainty about Chinese nickel ore supply after mining crackdowns in top supplier, the Philippines.
Meanwhile, the most bullish of bull runs continued for our Global Precious MMI which added a 7.2% increase to its jump last month to knock on the door of the top 10% of the IndX. The platinum group metals had strong increases along with gold and silver this month.
“Hey metal buyers, remember me?” Wall Street bull courtesy of iStock.
Palladium, particularly, made higher highs and stumbled to lower lows in classic bull market fashion.
So buy quickly before prices increase more, right? Wrong. Our Raw Steels MMI posted a healthy 4% increase, but it’s still heavily dependent on China’s stimulus programs to keep demand up in the largest global consumer of steel products. If there is a pullback in stimulus, prices could fall dramatically. The same is true for copper.
Unlike diamonds, bullish trends in commodities and industrial metals don’t last forever. Continue to make informed buying decisions in this thriving market — watch China’s stimulus program and the strength of the U.S. dollar post- Brexit — and remember that today’s price strength might be tomorrow’s carpet getting pulled out from under your feet.
Industrial metals entered bull market territory earlier this year and that puts the wind behind nickel’s back. Apart from the more bullish macro environment, we are witnessing two key developments within nickel’s industry that are undoubtedly adding fuel to this rally.
Tighter Environmental Rules
The Philippines isn’t joking around about tightening its environmental rules. On the first of the month, the Philippines new President, Rodrigo Duterte, used some bold words against his country’s miners: “We will survive as a nation without you. Either you follow strictly government standards or you close down.”
The country has so far suspended the operations of seven domestic nickel mines for failure to comply with environmental regulations. Moreover, the new mining minister, Regina Lopez — a committed environmentalist — recently vowed to close more nickel mines causing environmental destruction.
The Philippines is the biggest supplier of nickel ore to top consumer China since Indonesia banned shipments of unprocessed mineral ores back in 2014. The recent suspension of mines and the risk of more closures lifted nickel prices over the past few weeks.
Surge in Nickel Imports
Although the metal has benefited for the most part from a bull narrative of supply shortfall this year. The bulls are finding more reasons to bet on nickel amid growth in Chinese demand, which is being reflected in the surge in Chinese imports this year. Refined nickel imports in China have surged by 189% to a record 226,100 metric tons in the first half of the year.
What This Means For Metal Buyers
The Philippines is the top supplier of nickel ore to China and these new developments have sparked concerns about ore supply. Moreover, demand seems solid thanks to China’s stimulus measures. These two factors, combined with a bull sentiment across the industrial metals complex, have given buyers enough reason to take risk off the table as prices could continue to trend up.
Sign up for MetalMiner membership for all stainless steel prices.
For full access to this MetalMiner membership content: Log In | Join
Allegheny Technologies, Inc. reported sales were up 7% for the second quarter over the year before, increasing to $811 million, with the company reporting an overall net loss largely due to its recent work stoppage.
ATI CEO, President and Chairman Richard Harshman described reason for cautious optimism to an uptick in orders in the aerospace market — both in engine components and airframes — and lowered capital expenditures in the near future ATI continues to ramp up production at its $1.2 billion Brackenridge, Pa., flat-rolled stainless production facility.
“Commercial aerospace market sales increased another 3% compared to the first quarter of 2016,” Harshman said. “Sales to the aerospace and defense market continued to drive ATI’s results, representing over 50% of total 206 sales. Our aerospace market is being driven, in large part, by the growth of ATI’s next generation mill products, forgings and castings.”
Harshman and other ATI executives described the nickel and titanium alloys — and powders that ATI sells for additive manufacturing — it provides to the defense and aerospace markets as the future of the company. Harshman also said the business momentum ATI is experiencing “certainly the best it’s been in quite a while.”
While flat-rolled stainless products are clearly not ATI’s future, ATI officials said the flat-rolled products division improved financially in Q2. According to the earnings report, officials expect the division to be “modestly profitable” in the fourth quarter. This opened up the possibility of ATI considering reopening its Midland, Pa., production facility. ATI officials had previously said the plant won’t return to production until the flat-rolled market improves.
“In our FRP segment, our second quarter results demonstrate that we are making progress in our journey toward a consistently profitable business, during a period of continuing low raw material prices, global stainless steel sheet and strip overcapacity, and uncertain end market demand,” Harshman said.
Base prices have increased three times since the beginning of 2016. Stainless buyers have already been paying a steady increase in base prices in the transactional market. By now, most contract stainless buyers are at base prices higher than their prior contract period. Master distributors are extracting premiums as metal buyers scramble to fill in any gaps in their supply chains. Another base price increase is expected to be announced after the September anti-dumping duty determination on Chinese cold-rolled, flat stainless steel.
US Mills Enjoying Price Increases
The U.S. mills have the momentum to capture another base price increase. Domestic mills have strong order backlogs. Domestic lead times continue to be longer than the normal six to eight weeks. The impact of the anti-dumping and countervailing duty lawsuits against Chinese cold-rolled stainless has finally occurred.
The latest U.S. Census statistics showed cold-rolled stainless imports into the U.S. from China dropped to under 2,000 metric tons in May, compared to almost 10,000 mt in April. Other Asian importing countries have not significantly increased activity into the U.S. Increased imports into the U.S. from Europe have amounted to less than a 1,500 mt-per-month increase.
The threat of trade cases has made many importers cautious about the U.S. market. Whether domestic or import, the metal buyer should expect to be paying higher overall prices in the upcoming months. Since publishing our July monthly outlook, nickel prices have climbed 12%.
Cover Your Volumes
Even though prices are on the uptick, stainless buyers need to ensure that their volumes are covered. Any manufacturer with spikes in stainless demand may have difficulty in procuring additional material quickly, especially in bright-annealed, polished and thicknesses less than .030 inches.
I strongly urge metal buyers to review stainless flat-rolled requirements to ensure that adequate volumes are secured with your suppliers. Whether import or domestic sources need to be utilized, your suppliers need more transparency than ever before in your flat-rolled stainless steel needs.
China’s Commerce Ministry said on Wednesday the U.S. deliberately misinterpretedWorld Trade Organization rules after the Commerce Department found that Chinese stainless steel sheet and strip was illegally subsidized. Some companies were hit with 193% import duties.
Commerce found in favor of countervailing duties for imports of stainless steel sheet and strip from China and said it had set a preliminary subsidy rate of 57.3% for a Chinese steel manufacturer, Shanxi Taigang Stainless Steel Co. Ltd. Many, many more were hit with 193% duties, in part because they did not respond to Commerce’s requests for information during the investigation.
Chinese Steel overproduction remains a global issue, even as China complains that other nations unfairly place tariffs on its steel.
China’s Commerce Ministry said in a statement it was not satisfied with the decision and that it would use the WTO dispute settlement process to defend its interests. That’s awfully rich, as China continues to overproduce steel — both carbon and stainless — at a rate that dwarfs every other country in the world.
China produced more steel than the rest of the world combined in May. According to the World Steel Association, China produced 70.5 million metric tons of crude steel products in May, up 1.8% from the levels of a year earlier and just shy of the record level hit in March.
The China Iron & Steel Association said March steel production hit 70.65 mmt, a record high, amounting to 834 mmt on an annualized basis. To China’s credit, Beijing is using both its clout and power to finally start an attempt to consolidate China’s massive steel sector, according to the Financial Times. However, that process is going along about as glacially as other changes in the People’s Republic.
Overproduction Leads to Frustration
It should come as no surprise to China that U.S. and other nations’ regulators are fed up with its overproduction. Read more
Commerce calculated a preliminary subsidy rate of 57.30% for mandatory respondent Shanxi Taigang Stainless Steel Co. Ltd. Mandatory respondents Ningbo Baoxin Stainless Steel Co., Ltd. (and its cross-owned companies Baosteel Stainless Steel Co., Ltd., Baoshan Iron & Steel Co., Ltd., Baosteel Desheng Stainless Steel Co., Ltd., Baosteel Co., Ltd., Bayi Iron & Steel Co., Ltd., Ningbo Iron & Steel Co., Ltd., Shaoguan Iron & Steel Co., Ltd., Guangdong Shaoguan Iron & Steel Co., Ltd., and Zhanjiang Iron & Steel Co., Ltd.) and Daming International Import Export Co. Ltd. (and its cross-owned company Tianjin Taigang Daming Metal Product Co., Ltd.) either notified Commerce that they would not participate in this investigation or did not, in fact, participate in the investigation. Read more
Our Stainless MMI rose to 55 points in July thanks to a recovery in nickel prices. Nickel finally climbed to five-digit territory in July, trading near $10,000 per metric ton on the London Metal Exchange, its highest level in eight months.
A factor supporting nickel prices this year is expectations of lower nickel pig-iron ore exports from the Philippines. Ore producers in the Philippines warned earlier this year that they would cut production due to low prices. So far, Chinese imports of Philippine ore fell by 27% in the first five months of the year.
But price momentum picked up last month following recent news that the Philippine government would review all mining operations in the country. The new President-elect, Rodrigo Duterte, ran on an anti-mining platform and could impose an Indonesian-style raw ore ban, which could potentially disrupt supplies for Chinese buyers.
New Philippine Government
In addition, the new mining minister, Regina Lopez — a committed environmentalist — provided the latest trigger for a rally after saying that there would be a ban on fresh mining exploration in the country for a month while all existing mines are being reviewed.
The expectation is that mines could potentially have their licenses revoked. At the beginning of July, the Philippines already ordered the suspension of operations at two nickel ore mines for environmental violations and the government halted the issuance of exploration permits as a nationwide crackdown led by the mining minister begins.
Nickel’s Bullish Backers
This bullish price action also follows a broad recovery in the whole metal complex this year, which gives more credibility to nickel’s bulls. Our historical analysis shows that a metal has far greater upside potential when the overall commodities market is in bullish mode, while its chances of going down increase in a falling commodities market. While we continue to see bullish sentiment in commodity markets, investors will continue to react in a bullish manner on news like potential supply cuts in the Philippines.
On the other hand, not everything is bullish about nickel. Most analysts call for a deficit this year due to stainless mills having to rely more on refined nickel. This deficit would follow a five-year period of surplus but estimates are for a deficit of less than 100,000 mt this year. That is not a big number considering that LME and Shanghai Futures Exchange inventories currently account for around 500,000 mt combined, at least five times more than the expected deficit.
For full access to this MetalMiner membership content: Log In | Join
Reuters reported that the Philippines has ordered the suspension of operations at two nickel ore mines for environmental violations and halted the issuance of exploration permits as a nationwide crackdown led by a new mining minister begins.
The move could curb nickel ore shipments from the Southeast Asian country, the top supplier to No. 1 market China.
Australia Cuts Iron Ore Forecasts
Australia on signaled it sees the current rally in iron ore prices coming to an end, cutting its price forecasts over the next 18 months to reflect an industry grappling with oversupply and weak demand.
Recently it issued quality control rules that required registration for the manufacture, import and sale of 16 steel products. One of the outcomes of this order was that it would weed out defective and substandard stainless steel used in utensils and kitchen appliances.
The quality control order was issued by the steel ministry in consultation with the Bureau of Indian Standards (BIS), making it compulsory to hold a BIS certificate. The certificates apply to low-grade stainless steel plates, sheets and strips, especially those used for utensils as well as for low nickel austenitic stainless steel sheet and strips used in kitchen appliances and utensils.
The latest Quality Control Order is applicable to some 25 grades of stainless steel. Incidentally, the QCO mainly covers three Indian Standards including IS 5522, IS 15997 and IS 6911. Grades covered by these three standards are: IS 5522 – 304, 302 & 430; IS 15997 – N1 (Min 1% Nickel), N2 (Min 1.5% Nickel) & N3 (Min 4% Nickel); IS 6911 – 405, 430, 410, 420S1, 420S2, 420S3, 431, 440, 201, 201A, 202, 301, 302, 304S1, 304S2, 309, 310, 316, 316L, 316Ti, 321 & 347.
The order was to be implemented by the producer, domestic or foreign, and not the end user.
The order placated a section of domestic steelmakers who were clamoring for a stop to cheap imports. In March, after some intense lobbying by steel players, the Indian government extended safeguard duties on a range of steel products by another two years to protect local steelmakers from cheap imports.
The move was welcomed by the Indian Stainless Steel Development Association (ISSDA), a trade body representing the stainless steel industry. ISSDA also pointed out that the order will have a minimum impact on the stainless steel utensils market since it does not cover stainless steel containing less than 1% nickel.
ISSDA President N.C. Mathur said the order would ensure competitiveness and growth of India’s manufacturing sector.
Similar to copper, nickel is not metal investors’ favorite child right now. While oversupply is still and issue, only a weaker dollar and further Chinese stimulus could lift prices. However, that wasn’t the case during the month of May, driving prices down. Our Stainless MMI was no exception, falling 4%.
For the past six months, every time three-month London Metal Exchange primary nickel approached $9,500 per metric ton, prices fell short. It happened in March and again in May.
Recently, Russia’s Norilsk Nickel, the world’s largest nickel miner, said that in order for a sustained recovery to happen, more cuts will have to materialize. That’s a very unusual statement for a metal producer as they tend to talk up the market. According to the company, over 20% of the global nickel supply needs to be cut if we want to see a sustained recovery in prices.
If Norilsk has it right, it will take some time until we see a significant recovery in prices since, so far this year, there hasn’t been any supply cut announcements. The latest significant production cut was announced late in 2015. Despite its non-optimistic outlook, the company is moving ahead with the development of new projects. Norilsk Nickel is still profitable, aided and abetted by co-mined minerals and the depreciation of the Russian Ruble.
U.S. Prices Buck Global Trend
Not only Norilsk but producers that are loss-making at current prices seem redundant to shut down capacity. Glencore and fellow Australian miner BHP Billiton have recently said no more than they “may” close capacity at Murrin Murrin and Nickel West, respectively.
Here in the U.S., however, anti-dumping actions are having an effect and stainless, cold-rolled prices have been steadily rising this year. The three base price increases for 2016 have been firmly implemented on spot business. Although contractual business may have been protected from immediate base price increases, the next contract periods will definitely reflect the higher base prices.
U.S. mills have been trying all year to recoup unrealistically low base prices from 2015. The anti-dumping and countervailing duty actions filed by U.S. stainless mills against China have solidified the base price increases as well as disrupted the supply of several niche products.
All 200, 300 and 400 series alloys have been impacted by the 2016 base price increases. The three stainless base price increases for 2016 have cumulatively impacted 304 stainless base prices by at least $0.10 per pound on base gauge and almost $0.13 on 22 gauge. 430 stainless has risen by close to $0.08 per pound. 409 has risen by $0.06 per pound. Several sources speculate that there could be another round of increases on the horizon because U.S. cold-rolled stainless supply is tight.
U.S. Supplies Tighten
Mill lead times remain extended with North American Stainless (NAS) maintaining a controlled-order-entry mechanism. Some service centers also report that the light gauge stainless is limited and available only for customers who also place base gauge volumes.
Buyers of metal need to have well-established supply chains for all of their cold-rolled stainless products. NAS and Outokumpu Coil Americas remain the core suppliers of austenitic commodity products.
Two Producers Inherit Commodity Stainless Market
AK Steel is not focused on nickel-bearing commodity stainless grades. Allegheny Technologies’ Flat-Rolled Products segment continues to seek higher-value stainless and has limited its exposure to commodity stainless.
In theory, Allegheny and AK Steel could relieve some of the long lead times metal buyers are experiencing, but their mill capacity is focused on supplying other products or has been idled. The anti-dumping and countervailing lawsuits against China have impacted the Asian supply of cold rolled stainless. For instance, Taiwanese rerollers using Chinese hot band for bright annealed have limited new offers.
POSCO, which has South Korean and Vietnamese stainless mills, is being cautious with offers into the U.S. market. Bright annealed and light-gauge, cold-rolled stainless remain the product categories most impacted by the trade cases.
Stainless flat-rolled pricing remains poised for further base price increases. Stainless demand is expected to remain around the same volume in the U.S. The trade cases against China are proceeding in a multitude of steel products, not just stainless. Although domestic mills are capable of producing more stainless volume, the appetite for AK Steel and Allegheny does not appear to be there yet. Until then, NAS and Outokumpu will be the core commodity stainless producers. Metal buyers will need to look to alternative sources for niche products and perhaps should look to European mills such as Aperam or ThyssenKrupp AST as Asian importers are spooked by the trade cases against China.
For full access to this MetalMiner membership content: Log In | Join