Stainless Steel

Our March price trends report, which analyzes the entire month of February’s price data from the MetalMiner IndX, shows robust price increases in metals markets that are still running with the bulls.

March Price Trends

Our Stainless MMI led the pack, increasing 6.8%, but the copper, raw steels, aluminum and rare earths sub-indexes all showed strong gains, as well.

One area of concern this month is that oil prices have fallen back below $50 per barrel as U.S.
shale producers beat expectations by adding 8.2 million barrels to existing reserves. Low oil
prices would benefit metals producers by keeping energy and transportation costs lower, but
they also may drag down other commodities with them.

We don’t usually see investment metals such as platinum and gold increasing at the same time
as base metals, either, but positive sentiment about the economy had both increasing this month. So, until we see anything that points otherwise, a rising tide is still lifting all the (metals) boats.

CME Group and Thomson Reuters will step down from providing the LBMA silver price benchmark auction, the London Bullion Market Association said on Friday, less than three years after they successfully bid to provide the process.

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“In consultation with the LBMA, CME Group and Thomson Reuters have decided to step down from their respective roles in relation to the LBMA Silver Price auction,” the LBMA said in a members update seen by Reuters.

The two will continue to operate and administer the silver auction until a new provider is appointed, the LBMA said. It will launch a new tender to appoint an alternative provider to operate the process “shortly”, it said.

“We would be looking to identify a new provider in the summer, and have the new platform up and running in the autumn,” an LBMA spokesman said.

The two companies launched the LBMA silver price in August 2014 to replace the telephone-based London silver “fix,” which had been in operation for more than a century, with an electronic, auction-based and auditable alternative.

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CME Group provides the electronic auction platform for the benchmark, while Thomson Reuters is responsible for administration and governance. The LBMA owns the intellectual property rights.

Philippines Might Consider Indonesia-Style Ore Export Ban

The Philippines may consider banning exports of raw minerals to encourage domestic processing and boost the value of shipments, an environment official said on Friday, as the government looks to extract more from its mining sector after a crackdown.

We warned last month that the mostly small losses the prices our MetalMiner IndX experienced were caused by investors taking profits.

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Our suspicions were confirmed when almost all of our sub-indexes had big price rebounds this month. The Automotive MMI jumped 12.2% Raw Steels 8% and Aluminum 6%. Even our Stainless Steel MMI only dropped 1.7% and has taken off since February 1 as nickel supply is even more in question now with both the Philippines and Indonesia’s raw ore exports in question.

The bull market is on for the entire industrial metals complex. Last month’s pause was necessary for markets to digest gains but the strong positive sentiment for both manufacturing and construction shows no signs of ebbing in the U.S. and Chinese markets.

Our Stainless MMI inched lower in January but it’s already working higher in February as nickel prices rebound.

That Other Ban

In mid-January, Indonesia issued significant new mining rules that will relax its ban on exports of raw nickel ore.

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The revisions to the earlier regulation will allow miners to only export low-grade ore (defined as metal content of 1.7% or less) as long as they express a commitment to build their own smelters within five years and are able to supply domestic smelters with enough low-grade ore to meet at least 30% of the country’s input capacity.

Stainless MMI

This distinction between low-grade and high-grade ore (1.7% or more metal content) is important. Lower-grade ore increases the cost base for Chinese nickel pig-iron. In addition, NPI and ferronickel are more energy intensive than the higher grade refined nickel. Therefore, the greater use of lower grade nickel leads to more pollution, an issue that China is currently tackling.

According to Indonesia’s mining minister, Indonesia produces 17 million metric tons of nickel ore per year, of which 10 mmt is low-grade. The country’s nickel smelting capacity is currently 16 mmt and may reach 18 mmt this year.

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As its mining minister puts it, Indonesia may export up to 5.2 mmt of nickel ore a year under the country’s new rules. This is less than 9% of what the country used to export prior to the ban. Although this is important information to take into account, Indonesia’s easing will not flood the global market as many feared.

More Shutdowns In The Philippines

On February second, the Philippines ordered the closure of 21 mines, and seven others could be suspended. The nickel mines recently ordered to shut down account for about 50% of the country’s annual output. Prices rose sharply on the news as the mining shutdowns in the Philippines seem likely to be a to greater driver of price movements than the easing of Indonesia’s export ban.

What This Means For Metal Buyers

If we narrow our view to the supply/demand fundamentals of the nickel industry, the picture looks bullish, but rather complex. However, we need to widen our view to the whole industrial metals spectrum, and that picture looks quite bullish. Industrial metals continue to rise on robust demand and shrinking supply. The bullish sentiment across the metal complex, combined with more nickel mine closures should support prices in the mid-term.

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Yesterday, the Department of Commerce placed final, affirmative anti-dumping and countervailing duties on imports of stainless steel sheet and strip from China.

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Commerce found that dumping  occurred by mandatory respondents Shanxi Taigang Stainless Steel Co., Ltd. and Tianjin Taigang Daming Metal Product Co., Ltd. Commerce also determined that the mandatory respondents are not eligible for a separate rate and, therefore, part of the China-wide entity.

Commerce calculated a final dumping margin of 63.86% for the non-China-wide respondents eligible for a separate rate. Commerce assigned a dumping margin of 76.64% based on adverse facts available for all other producers/exporters in China that are part of the China-wide entity due to their failure to respond to Commerce’s requests for information. Read more

On Thursday, the Philippines ordered the closure of 21 mines, and seven others could be suspended. The country previously suspended nickel mines last year. The nickel mines recently ordered to shut down account for about 50% of the country’s annual output.

Nickel Prices Rebound

Nickel Rebounds on news of the Philippines’ shutdowns. Source: MetalMiner analysis of fastmarkets.com data.

Nickel rose sharply on the news. Over the last few weeks, nickel prices were struggling to make headway as investors feared that the easing of the Indonesian export ban would bring more ore supply into global markets.

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Now we have two factors, Indonesia’s easing of its export ban and the Philippines’ shutdowns, that could drive prices in opposite directions. However, as we explained recently, the mining shutdowns in the Philippines are likely to be a greater driver of prices. Read more

Or at least if that wasn’t the intent, it’s likely how the smelters feel.

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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

Our Stainless MMI fell by two points in December after a mixed performance.

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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.

Filipino supply

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.

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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.

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The chrome portion of our prices jumped month on month and Platts reported that the same thing happened to its stainless benchmarks.

Turner Construction Index Posts Strong 4Q

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.

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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.

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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.

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.

Price Hike?

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.