In an about face on Indonesia’s 2014 export ban across a range of minerals, Energy and Mineral Resources Minister Ignasius Jonan said this week that local miners might be allowed to export up to 5.2 million tons of low-grade nickel ore a year, partially reversing the ban intended to force buyers to set up value-add refining facilities in Indonesia.
The export ban has been relatively successful. Export volumes, of course, plummeted from about 60 million metric tons before the 2014 ban was enforced but new refineries have been set up and refined volumes of value-add material have increased. Read more
On the one side, surcharges for 304 and 316 stainless steel rose by 34% and 25% respectively, as the chrome portion of the benchmark jumped month-on-month. The mill-announced price increase, combined with higher surcharges, marks the largest month-on-month increase seen in recent history.
On the other hand, nickel prices retraced in December on profit-taking across the industrial metals complex. Nickel prices are now at attractive levels wherein we could see investors pushing prices back up. That will depend on upcoming news that will either boost them or send prices lower. One thing is for sure: volatility is guaranteed in the weeks ahead.
Will Indonesia Relax its Export Ban?
Indonesia banned raw ore exports in 2014 to stop mineral wealth disappearing overseas. The country was the top supplier of nickel ore to China for use in (nickel pig-iron) stainless steel before the export ban. Indonesia hoped that the band would encourage smelter investment, but investments haven’t exactly progressed as quickly as expected.
In recent months, rumors are that the Indonesian government is relaxing its export ban. In October, Luhut Pandjaitan, Indonesia’s then-acting mining minister, said that Indonesia was reviewing its mining rules and that the country could could give companies up to five more years to build smelters, and reopen exports of nickel ore banned since 2014. However, soon after he was quoted saying Indonesia would “almost definitely” keep in place a ban on nickel ore and bauxite exports. Which is it?
Many smelters were hoping that they could temporarily export ore to raise funds for downstream investment. Nobody knows what Indonesian’s final decision will be, but the consensus in the market now seems to be shifting towards Indonesia permitting some exports. This fear might explain why nickel prices haven’t really picked up like metals such as zinc or tin.
Others think that there won’t be any relaxation of exports of nickel ore and bauxite. Investors have already spent billions of dollars on smelters in Indonesia. Easing the ban would risk risk flooding the overseas market and undermining prices. Those investors wouldn’t be very happy about that, as it would contradict promises by the nation’s president.
I personally think it would be an unwise move to ease the ban but any outcome is still possible. Stainless buyers need to keep in mind that a relaxation of the ban could put downward pressure on nickel prices while Indonesia keeping the ban in place would have the opposite effect.
When Indonesia introduced the ban in 2014, the Philippines ramped up production to fill the gap, but the country’s mining industry is now facing a raft of closures for environmental reasons. The Philippines and the still relatively new Duterte administration have already halted the operation of 10 mines and another 20 face suspension.
Before the month ends, the country is expected to determine which of these 20 mines will be suspended. Last month, Environment and Natural Resources Secretary Regina Lopez was confident that more mines will be suspended.
What This Means For Metal Buyers
Nickel prices fell in December but remember that the overall sentiment in the metals complex is still bullish. If Indonesia keeps its export ban in place and The Philippines suspend more mines, investors will significantly lift prices from current levels.
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Rising raw material surcharges are driving up U.S. steel prices, particularly stainless surcharges. The Allegheny Ludlum304 and 316 stainless surcharges rose 34% and 25%, respectively, on the MetalMiner IndX from December to January.
Turner Construction Company reported recently that its Fourth Quarter 2016 Turner Building Cost Index — which measures costs in the nonresidential building construction market in the U.S. — has increased to a value of 1006. This represents a 1.11% quarterly increase from the Third Quarter 2016 and a 4.90% yearly increase from the Fourth Quarter 2015.
The U.S. construction market continues to experience broad growth, with the West and Southeast regions seeing more significant gains, and the Northeast and Central regions seeing more moderate gains. While raw material prices have remained flat, they have experienced an overall gain this year and fabricated material prices have seen a continuous growth this quarter.
Price stories continue to dominate our look back at the most-read posts of 2016. Katie Benchina Olsen’s missive on why North American Stainless should hike prices was first published in late January. Stainless prices have taken off with the rest of the industrial metals since but this look back shows just how precarious the situation was for producers, who were afraid of scaring off customers with higher prices, back then. — Jeff Yoders, editor
North American Stainless (NAS), the US flat-rolled stainless market leader and the lowest cost producer, has a decision to make.
Will NAS implement another base price increase effective in March or April? Last month, NAS, never known to be a follower, announced a base price increase which was half that of its competitors Allegheny Technologies, Inc. (ATI), AK Steel and Outokumpu Coil Americas. This meant that the only increase buyers would be paying was the less aggressive 2-discount point adjustment (approximately $0.04 per lb. increase on 304 base gauge).
Will NAS increase base prices in March or April? Source: Adobe Stock/Jovanning.
Stainless base prices may have gone up since January 1, but buyers should still be paying a lower net price for standard 304 2B this month than they did in December. The increase on base gauge 304 was offset by the over $0.05 per lb. decline in the 304 alloy surcharge. 304 Base gauge net prices should decline in February since NAS’ February 304 alloy surcharge will be $0.3321 per lb., which is $0.0031 per lb. less than the January surcharge.
North American Stainless’ Market Position
NAS is in the best position to endure depressed stainless prices longer than any of its North American competitors, but now they are losing money, too. Acerinox, NAS’ parent company from Spain, posted a loss of over €8 million in Q3 2015, after being in the black the previous three quarters. Acerinox’s 2015 results will not be announced until February 29, but I would expect the results to be worse as alloy surcharges continued to decline through the end of 2015.
I believe NAS will announce another base price increase once its March production is filled, which should be in the next week. The base prices in Q4 2015 were unsustainably low as a result of Outokumpu Coil Americas’ push to fill its Calvert mill with lower prices than NAS.
As long as mill lead times remain in check, service centers will support the domestic mills so that they can keep inventory as lean as possible while still being able to provide for the manufacturer’s requirements. My experience has been that when alloy surcharges are still declining, price increases are easier for the market to accept. Another base price increase is not only feasible for March or April, it is necessary to realign base prices to manageable levels for producer, service center and manufacturers. NAS needs to lead the next price increase and act like the market leader.
As we continue to republish our highest-rated posts of the year during the holidays, we look back at the February announcement that Allegheny Technologies, Inc., exited the commodity stainless steel business.
Knowing what we now know, and considering that stainless prices have recovered and entered a bull market, you do have to wonder if ATI made the right call. Our Katie Benchina Olsen will continue to cover the latest developments for both ATI and the stainless market in the new year. — Jeff Yoders, editor
For the foreseeable future, Allegheny Technologies, Inc. (ATI) is out of the flat-rolled stainless commodity business as well as the grain-oriented electrical steel (GOES) market.
ATI will be focusing on global markets with high barriers to entry. As we reported last month, ATI is reducing its exposure in commodity products by idling its Midland, Pa., plant, a commodity stainless facility, and its Bagdad GOES production facility in Gilpin Township, Pa.
ATI’s Brackenridge facility is the future and commodity stainless is its past. Source: ATI
Earlier this week, ATI reported in its earnings call a net loss of $378 million for 2015 as compared to a net loss of $2.6 million in 2014. ATI’s flat-rolled products business segment is to blame for the staggering losses. Operating losses for flat-rolled products were $242 million for 2015. For this reason, Rich Harshman — ATI’s chairman, president, and CEO — stated that ATI is taking “rightsizing actions” to return the segment to profitability as quickly as possible and “execute our strategy for sustainable long-term profitable growth.”
If you read MetalMiner, it’s no surprise to you that the industrial metals bull run took off in a major way this month. Copper rose nearly 17% to edge out the Raw Steels MMI (up 14%) as our December big winner, but even the metals that lost a little ground (aluminum and our global precious index) pared their losses below 3% on the MetalMiner Indx.
The industrial metals picture looks a lot more upbeat than it did just two months ago, but markets are fluid things. When will commodities and the surging U.S. dollar (the dollar index hit a new high Thursday) uncouple? Can the optimism last? What will higher interest rates mean in the new year?
Our Stainless MMI rose 3.3% in November as nickel prices continue to look strong.
The Philippines’ output of nickel ore fell 16% in the third quarter from a year earlier, as a result of several mine suspensions due to environmental violations. The country has already stopped work at 10 of its 41 mines, eight of which are nickel mines. 20 More mines, 14 of which mine nickel, could see their licenses suspended.
Environment and Natural Resources Secretary Regina Lopez recently said that there will definitely be more mine suspensions when the country releases rulings on those 20 mines, possibly within the next few days.
Meanwhile, Indonesia will cut the royalty charged on sales of processed and refined nickel to 2%, from the current 4%, to encourage more miners to develop smelters. In addition, the country appears unlikely to resume nickel ore and bauxite exports.
On the other side of the equation, higher than expected Chinese demand is adding fuel to nickel’s price rally. The Caixin Manufacturing PMI in China was 50.9 in November, the fifth straight month of expansion. In addition, the U.S. is set to increase infrastructure spending as Donald Trump takes office.
Apart from the bullish narrative of more demand and less supply, prices are acting strong as it appears that bulls are still in control. Over the past few weeks, nickel prices are resting near $11,500/mt in what it looks like a pause to be followed by another price rally. Specially, considering the ongoing bullish sentiment across the entire industrial metals complex.
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Dutch 3D printing technology firm MX3D is close to beginning construction on its stainless steel, 3D-printed pedestrian bridge in Amsterdam.
We wrote about the bridge and its design in 2015. MX3D Co-Founder and CMO Gijs van der Velden recently explained to me at the Autodesk University trade show in Las Vegas where the project is at and why they expect construction (via giant welder robots who will weld individual parts “printed” in mX3D’s facility together) to start in early 2017.
“We’re at the point where we’ve printed every critical part of the bridge and all we need is approval from the engineers,” van der Velden said. “Our design is quite elaborate and all the diameters change everywhere and we use 3D printed parts. We’re getting pretty close and once they approve we have agreed with the City government that once we do a full load-bearing test it will be acceptable. It’s not the normal procedure but the city was very helpful in accommodating us.”
The bridge, which will be made of stainless steel 316 alloy, will be installed in a public park in Amsterdam and cross one of the city’s famous canals.
One of the stainless steel supports of MX3D’s 3D-printed pedestrian bridge that will soon be assembled and welded together in Amsterdam. Source: Jeff Yoders.
“(We chose 316 stainless) because it’s highest grade standard and not too expensive,” van der Velden said. “We want to make this technique available for other professions — other than aerospace (where it’s already being used) — so, we want to work in steel, stainless steel, bronze, aluminum.”
Our Stainless MMI inched up 2% in October. However, it was at the beginning of November when prices surged. Three-month London Metal Exchange nickel jumped above $11,000/mt, the highest level since August 2015. By the way, we predicted this move just a few weeks ago.
Robust Chinese demand for nickel and other metals has broadly supported a price rebound from multiyear lows that were hit earlier this year. Not only nickel, but the whole metal complex is hitting new highs. When investors turn bullish in the metal sector, any bullish news can make the individual metal increase in price and, nickel is particularly enjoying a bull narrative.
Bullish Industry Fundamentals
First, Indonesia recently announced that the country will “almost definitely” keep in place a ban on nickel ore and bauxite exports. Just a few days ago, nickel investors were concerned that Indonesia was considering lifting the ban. Now that those fears have waned, investors seem willing to chase prices higher.
Second, The Philippines announced that it will prolong the ban on new mines, reviewing all environmental permits previously granted to nickel producers. The announcement dashes industry hopes that some restrictions may be lifted following the audit that was finished in August.
The news come after a quarter of the country’s miners have been closed with another 20 of them under the risk of suspension.
Bullish Price Action
On top of the above, we are seeing a very constructive price action. After nickel jumped 25% from June to August prices rested in a narrow range for the next three months. Despite a strong dollar in October, investors were unwilling to sell nickel. Now that momentum for investing in the industrial metals complex is picking up again, we expect nickel prices to work higher into 2017.
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Most base metals fell this month, pressured by a rising U.S. dollar. Meanwhile, Nickel prices traded almost flat. Why does this matter? This means that despite downward pressure in the metal complex this month, investors are not giving much ground on nickel.
This price action seems very constructive and chances are that nickel is setting up for a new rally after this consolidation. On top of that, nickel’s fundamentals also favor a move higher:
Nickel prices are holding well, setting up for an upside move. Source: MetalMiner analysis of Fastmarkets.com data.
First, Indonesia recently announced that the country will “almost definitely” keep in place a ban on nickel ore and bauxite exports. Just a few days ago, nickel investors were concerned that Indonesia was considering lifting the ban. Now that those fears have waned, investors might be more inclined to chase prices higher.
Second, The Philippines announced that it will prolong the ban on new mines, reviewing all environmental permits previously granted to nickel producers. The announcement dashes industry hopes that some restrictions may be lifted following the audit that finished in August. The news come after a quarter of the country’s miners have been closed with another 20 of them under the risk of suspension.
What This Means For Nickel Buyers
Nickel prices might be setting up for a move higher. At least both the price action and fundamentals seem to agree with that. Buyers should have a good plan in order to protect margins in case of a price increase.