Stainless Steel

Three-month Nickel on the London Metal Exchange fell on Monday to a new 12-year low, falling as low as $8,175 per metric ton. The metal is the biggest loser on the LME this year, losing around 45% of its value on the year-to-date.

3M LME Nickel hits 12-year low

Three-month London Metal Exchange nickel has now hit a 12-year low. Source:

This year, we heard many times that since more than 50% of producers were underwater, prices were due for a recovery. But once again, the market has proven that production costs don’t determine the price of a metal, it’s what people are willing to pay that determines it.

Why is Nickel Still Falling?

Nickel has fallen on a poor outlook for its struggling steel sector as well as a strong dollar and China’s slowing growth. These two have also driven the entire metals complex down this year.

Nickel is the first metal falling below its 2009 low. With this, we believe the chances of other metals suffering the same fate have increased. Some base metals like copper are still trading well above their recession’s lows. Aluminum however, could be next.

Stainless steel end users and customers took the stage during American Metal Market‘s 29th Stainless & Its Alloys conference recently in suburban Chicago and let producers and resellers know what they need from steelmakers.

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Manufacturers of rail cars, food service equipment, exterior building skin and aerospace industry original equipment brought up issues such as continuing unhappiness with surcharges, additive manufacturing and general shipping and delivery difficulties that are still hampering their supply chains.


One of Zahner’s many structural stainless steel facade projects was the Pritzker Pavilion in Chicago’s Millennium Park. Credit: Sergio Perez/Zahner

Push for Industry Change

“The steel industry must innovate and engineer risks out,” said Partha Biswas, global CIO of international food service equipment manufacturer Middleby Corp. “Even though nickel prices are down now, the nickel price is an unacceptable financial risk for us. We need to test, validate and educate new processes at every link in the supply chain. Maybe it’s a good time to start talking about folding surcharges into the base price. Why is this one of the few industries that has surcharges that work this way?”

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China’s influence in the steel industry, particularly stainless, will continue to grow despite an inevitable reduction in direct exports in the coming years. Digital technology will continue to disrupt all facets of the stainless industry, particularly its supply chain, John Lichtenstein, managing director of and natural resources lead at Accenture said yesterday at the 29th AMM Stainless and its Alloys Conference in suburban Chicago.

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“Direct trade in stainless has been declining as a percentage of total production for a long time,” Lichtenstein said. “That trend is expected to continue as more production is concentrated in China. The government there will not crack down on production for environmental or economic reasons. The untold story is that indirect steel exports from China — as appliances fasteners and other products — will continue to grow in the coming years.”

Lichtenstein pointed out that, according to Accenture data, the top ten companies producing 76% of stainless from 1990 to 2005. Today, 15 of top 20 producers are from Asia, 11 from China.

Despite its high value and unique properties, stainless steel has, to a great extent, become commoditized due to several discernible factors.

“Stainless is very much a commodity and, in this situation a race to the bottom is inherent,” he said.

Lichtenstein said the industry got here by chasing lower and lower margins for the last 2 decades and relying on mergers and acquisitions to fuel profitability.

A quest for production efficiency drove a higher degree of product standardization. Small end-user order quantities, in turn, drove a high percentage of sales to service centers. Lichtenstein said data showed this reinforced standardization so that service centers could limit inventories. The ensuing low value-add opportunities drove sensitivity to small changes in pricing which drove arbitrage-seeking behavior… and increased volatility.

A global congruence in standards, due to such a high percentage of trade standardization, made the market perfectly suited for a disruption by overseas supply

“The indirect trade is hitting the US market market harder than direct steel exports,” he said. “The impact is even greater on other emerging markets. India and Brazil are desperately trying to build a manufacturing base, but they can’t build something like a washing machine more cheaply than China can.”

Lichtenstein also pointed out a recent change, largely under-reported, will allow foreign investors to take a controlling interest in Chinese steel companies. This would, he said, allow further expansion of Chinese steel companies around the world.

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“Until very recently foreign companies were not allowed to have a controlling interest in Chinese steel companies,” he said. “The government changed that and now anybody that wants to invest in a Chinese steel company can do so. The Chinese government has a strong desire to export excess capacity. Chinese companies can now build plants around the world. That reciprocity barrier is gone.”

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The Department of Commerce initiated anti-dumping duty and countervailing duty investigations of imports of welded stainless pressure pipe from India yesterday. Commerce alleged the imports are being dumped in the US at a margin of 32.06% and subsidies above the minimum rate are helping the pipe imports.

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In 2014, imports of welded stainless pressure pipe from India were valued at an estimated $36.9 million. Dumping occurs when a foreign company sells a product in the US at less than its fair value. For the purpose of countervailing investigations, countervailable subsidies are financial assistance from foreign governments that benefit the production of goods from foreign companies and are limited to specific enterprises or industries.

ITC Determination Next

The US International Trade Commission (ITC) is scheduled to make its preliminary injury determination on or before November 16.

If the ITC determines that there is a reasonable indication that imports of welded stainless pressure pipe from India materially injure, or threaten material injury to, the domestic industry, the investigations will continue and Commerce will be scheduled to make its preliminary CVD determination in December 2015 and its preliminary AD determination in March 2016, unless the statutory deadlines are extended. If the ITC’s preliminary determination is negative, the investigations will be terminated

The investigation includes circular welded austenitic stainless pressure pipe not greater than 14 inches in outside diameter. References to size are in nominal inches and include all products within tolerances allowed by pipe specifications. This merchandise includes, but is not limited to, the American Society for Testing and Materials (ASTM) A-312 or ASTM A-778 specifications, or comparable domestic or foreign specifications. ASTM A-358 products are only included when they are produced to meet ASTM A-312 or ASTM A-778 specifications, or comparable domestic or foreign specifications.

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The petitioners asking for Commerce to investigate are domestic producers Bristol Metals, LLC; Felker Brothers Corporation; Outokumpu Stainless Pipe, Inc.; and Marcegaglia USA Inc.


A Philippine nickel miner to offer IPO despite falling prices.

Nickel prices continue to drop, due mostly in part to weak demand from top consumer China, but that isn’t stopping one Philippine nickel miner from pursuing an initial public offering.

TVI Resource Development (Phils) Inc plans an IPO to raise as much as $22 million to fund a domestic gold and silver mining pursuit, according to a recent report from Reuters.

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Come Dec. 18, the Philippine miner, which Canadian miner TVI Pacific Inc holds a 31% equity interest in, will seek a listing on the Philippine Stock Exchange. The timing here is peculiar as Philippine nickel miner shares have suffered this year following an exemplary performance in 2014. Fellow miner Global Ferronickel Holdings Inc has held off on its IPO due to its stock price falling nearly 60% this year on nickel’s struggles.

That’s not stopping TVI Resource Development, however. The plan is to sell up to 272.02 million shares for the IPO, leading to a potential $22 million in earnings with a secondary offering potentially leading to $11 million in earnings, Reuters reported.

Will Nickel go the Way of Zinc and Lead?

A bearish market for base metals has been the story for the latter part of 2015. Nickel has notably suffered, as have zinc and lead, but the story for the latter two has changed in recent days. Zinc and lead, which are mined together, rose sharply last week on the heels of Glencore‘s announcement it will cut its annual zinc production by one third.

How will nickel fare for the remainder of 2015 and into 2016? You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

China lost a case over anti-dumping duties on European and Japanese about steel tubes used in power plants and Fortescue reported its quarterly iron ore shipments.

China Loses WTO Appeal

China lost an appeal ruling on Wednesday in a World Trade Organization dispute with Japan and the European Union filing complaints about Chinese use of anti-dumping duties on high performance, seamless stainless steel tubes.

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A WTO dispute panel had largely ruled against China in February, but all 3 parties appealed, and the WTO’s Appellate Body strengthened the case against China, reversing points where the panel had backed Beijing.

Fortescue Ore Shipments Virtually Flat

Australia’s Fortescue Metals Group reported on Thursday its quarterly iron ore shipments were virtually flat at 41.9 million metric tons, but the miner said production costs were cut more deeply than its fiscal 2016 target.

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The world’s fourth-biggest iron ore exporter, which had been aiming to lower its cash production cost to $18 per wet mt in a weak global market, said costs averaged $16.90 over the quarter.

The monthly Stainless MMI® registered a value of 59 in October, flat from last month.

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Most base metal prices stabilized this month and nickel was exception. The metal is finding support just above its 2008 lows. Nickel is the metal closest to its recession level. This level could act as a psychological support level for traders, helping support prices in the coming months. However, we suspect this won’t be enough to hold prices longer-term if bad news keeps coming out of China.

China is still producing more than it can absorb. Weak Chinese demand and the fear that the worst has yet to come remains the overriding theme for nickel. Price-related closures in the nickel industry have been frequent over the past few months. However, as we’ve been pointing out, it’s hard to determine how many more mine closures we will need to see before prices find that elusive floor.

Stainless_Chart_October-2015_FNLBesides weak demand, investors remain worried about the high level of visible inventories. Not that inventory levels are a good price indicator but, for what it’s worth, inventories today are way higher than what they were when nickel bottomed out after the recession. Today’s LME nickel inventory levels appear closer to 450,000 metric tons, still near their all-time high of last June, while in 2008 nickel stocks fell below 60,000 mt.

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The inventory picture looks similar in the stainless market. Domestic and import mill inventories remain high, with domestic mill lead times remaining short. With inventory well-stocked and the end of the year approaching, service centers will keep trying to reduce inventories, hesitant to order more than what’s absolutely necessary.

What This Means For Metal Buyers

We’ll have to wait and see if prices are able to bounce off their record lows. So far, we only see a lack of upside momentum. Nickel prices might need more than that before making a significant rally.

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Why are automakers not embracing stainless steel in structural applications to reduce overall weight and create safer and more fuel-efficient vehicles?


In addition to helping Marty and Doc get back to 1985, the DeLorean was innovative, practical and sported an attractive brushed stainless steel body.

Usually when you think of stainless steel in cars, the exhaust system, the trim or the DeLorean DMC-12 from the “Back to the Future” movies come to mind.

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The unpainted stainless body panels of the DeLorean made for a unique looking sports car/time machine, sure, but that seems to have done nothing for the mainstreaming of stainless steel use in the manufacture of passenger cars. Read more

The Institute of Scrap Recycling Industries (ISRI) Commodities Roundtable conference began today in  in Chicago.

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ISRI Chief Economist and Director of Commodities Joseph Pickard said the stainless steel industry became too reliant on Chinese demand in the last decade and a half.

“It’s a cyclical industry and Chinese demand has cooled,” Pickard said. “China is facing a series of daunting challenges, re-engineering their economy to a market-based one, quelling labor unrest and dealing with an aging population.”

China accounted for half of the world’s stainless production last year, Pickard said, and Chinese production of stainless was just 731,000 metric tons in 2001. Today, it’s 50% of the entire world. London Metal Exchange nickel prices are down around 33% on the year-to-date. According to Maquarie, Chinese production cuts are continuing and European production fell 5% year-on-year.

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Pickard was recenty selected to represent the US scrap industry in the Industry Trade Advisory Committee on Building Materials, Construction, and Non-ferrous Metals for the Dept. of Commerce and US Trade Representative.

Rising London Metal Exchange nickel inventories have been taken as a bearish sign for the future path of refined nickel prices, while appearing to run counter to the long running narrative that says the Indonesian export ban introduced in early 2014 will eventually lead to a shortage of nickel ore for Chinese nickel-pig iron production and, hence, upward pressure on prices.

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From a fundamentals point of view, nickel has been giving confusing messages of late and views vary widely on future price direction.

HSBC: The Biggest Nickel Bull

HSBC, for example, in its most recent Metals & Mining Quarterly Review forecast just last month said there would be a 53,000-metric ton deficit in the nickel market this year and prices would average $15,120 per mt this year. They are currently at $10,800 at the time of this writing. As a consequence of HSBC’s constrained supply side view, they are predicting $21,500 per mt in 2016 and $22,000 per ton in 2017.

Source HSBC

Source HSBC

A large part of the bank’s argument seems to be based on its belief that global stainless steel output will grow at a CAGR of 3.8% during 2014-18, admittedly considerably lower than the 6.5% CAGR during 2010-14, but still a hefty bet on China where concerns are growing about how robustly stainless output can continue to rise. Read more