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.
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.
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
The EU will charge tariffs of between 24.3% and 25.3% for sheet, coil and strip imports from China and of 6.8% for Taiwanese product, following a complaint lodged in May 2014 by the European steel producers association Eurofer.
Mincor Will Cut Production
Australian nickel miner Mincor Resourcessaid on Wednesday it will reduce production by up to 56% over the six months ending in December due to persistent low nickel prices that have left operating levels unsustainable.
Second quarter results will be coming out later this month for North American producers of flat-rolled stainless steel. The burning question remains will US mills file anti-dumping lawsuits on flat-rolled stainless steel?
If anti-dumping lawsuits are filed, what will the impact be on manufacturers and buying organizations?
Why Are Imports Up?
Let’s remember the reason imports began increasing in mid-2014: domestic mills had four-month lead times. Service centers as well as large manufacturers had to source imported cold-rolled stainless to stay in business.
A surplus of both domestic and imported cold-rolled stainless has led to low prices.
Manufacturers also relied on imports to make up for the loss of production at Outokumpu’s Calvert, Ala., plant caused by technical issues with its cold-rolling mills. In addition to long lead times, the strengthening US dollar kept imports flowing to the US.
Right now there is a glut of both domestic and imported cold-rolled stainless steel. Service centers still have higher than desirable inventories. Read more
Want a short-term buying strategy for nickel? Check out our complimentary July Metal Buying Outlook report!
1. Dollar to Euro exchange rate
2. Stainless steel global production
3. Global capacity utilization
4. China coking coal prices (impacting Chinese nickel pig iron production)
5. China GDP & PMI data
Nickel fundamentals do not tell a very good story if you are a stainless producer or service center. However, buying organizations likely feel differently about bearish metals. Nickel faces a number of headwinds that will continue to put pressure on prices.
Specifically, nickel suffers from weak global demand, excess service center inventory levels, an Indonesian export ban that failed to do what it intended to do (we’ll come to that in a moment) and increased stockpiles in China (although we do not accept the one-to-one correlation that higher inventory levels necessarily equate to lower prices and vice versa, lower inventory levels don’t necessarily equate to higher prices).
Service centers tell MetalMiner that inventory levels remain well above historical “healthy” MOH averages (about 2.4-2.6). Instead, inventory levels are up over 3.5 months, seasonally adjusted. This is a very bearish indicator. Demand has slowed for the typical summer slow-down. Service centers report transactional business is slow.
The Indonesian Export Ban
As many are aware the Indonesian government banned the export of unprocessed minerals back in January of 2014. Instead of having the desired effect of generating new investment for higher value added processing in country, exports have dried up and the government has begun tinkering with the ban to allow for some copper exports. The ban on nickel and aluminum exports remains intact but news reports suggest the ban for bauxite might be lifted which may be an indicator that the government could change its policy.
Regardless, this too is a bearish factor weighing on nickel.
Three-month nickel closed the month of June at $12,000/mt, sliding to a 6-year low. Nickel is in free-fall as shortage expectations faded. The long-term outlook remains bearish, especially while the rest of base metals keep falling. We expect to see high price volatility in the coming months.
So What Should My Industrial Buying Strategy Be?
This nickel price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!
I recently read in USA Today about a theft in Kentucky in which the most valuable piece of loot was a stainless steel barrel full of 17-year-old Eagle Rare bourbon, valued around $11,000.
A humble stainless barrel containing $11,000 in aged bourbon was recently stolen. Photo: Gregory A. Hall, The (Louisville, Ky.) Courier-Journal)
In my time in the stainless industry I have heard of stainless steel being used in wine tanks and in the tequila-making process, but I was surprised to hear that stainless barrels are now being used in the making of bourbon.
After all, it is the unused charred oak barrel that flavors bourbon as it ages.
During the traditional oak process, though, some liquid evaporates from the barrels—about 2% each year, according to Whiskey Magazine. The loss can be even greater in hotter climates such as Kentucky’s. The part lost is referred to as the “angel’s share” because it is the part of the bourbon the maker is supposedly sharing with the angels.
The theft of the stainless barrel of bourbon highlights one part of the process that many bourbon distillers would likely prefer the world not know about. The stainless barrel is used to store already aged bourbon until it needs to be bottled. Stainless steel doesn’t impact bourbon’s flavor, so the product can remain in the barrels for years until it’s ready to bottle. The longer some bourbons age, the more they can cost on the market. The use of stainless steel barrels in bourbon-making became more common in the 1990s.
The added benefit of storing bourbon in stainless rather than other oak barrels is that the distiller is not giving any more to the angels. Stainless steel barrels won’t allow our precious bourbon to evaporate. So, thank goodness for stainless steel barrels to ensure that the angels don’t overimbibe on America’s Native Spirit.
The London Metal Exchange’s Index of six industrial metals is heading for a fourth-straight quarterly loss, the longest such streak since 2001. Greece’s standoff with its creditors is adding to economic concerns amid a slowdown in China.
Nickel for three-month delivery retreated 4.9% to settle at $11,835 a metric ton at 5:51 p.m. on the LME, the biggest drop since Sept. 9. The price touched $11,730, the lowest since May 2009. The metal has lost 22% of its value this year.
Daily LME data showed nickel stocks rose 870 mt to 459,018 mt, halting a falling trend seen since the start of June and again sowing doubts that the market is poised to tighten significantly.
The Shanghai Futures Exchange (ShFE) approved three new nickel brands – including OAO Norilsk Nickel – today for delivery against its contracts as persistently high stockpiles and risk aversion over Greece weighed on the market.
Architecture billings increased in May, while Morgan Stanley changed its forecast for nickel prices to a more bearish outlook.
ABI Back in Positive Territory
Led by growing demand for new schools, hospitals, cultural facilities and municipal buildings, the Architecture Billings Index (ABI) increased in May following its second monthly drop this year. As an economic indicator of construction activity, the ABI reflects an approximate nine to 12 month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the May ABI score was 51.9, up from a mark of 48.8 in April. This score reflects an increase in design services (any score above 50 indicates an increase in billings).
“As has been the case for the past several years, while the design and construction industry has been in a recovery phase, we continue to receive mixed signals on business conditions in the marketplace,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Generally, the business climate is favorable, but there are still construction sectors and regions of the country that are struggling, producing the occasional backslide in the midst of what seems to be growing momentum for the entire industry.”
Morgan Stanley Bearish on Nickel
Morgan Stanley slashed its nickel price forecasts for the second half of the year Tuesday as demand from stainless steel producers continues to be undermined by a deteriorating outlook for global growth. The bank cut its third quarter 2015 nickel price forecast by 12% to $13,228 a metric ton; and its fourth quarter outlook by 10% to $13,448 a metric ton.
Outokumpu appears to be the only mill in North America that produces cold-rolled stainless steel 72 inches wide. But we’re not sure if anybody really knows that.
Outokumpu produces 72-inch-wide stainless, reducing the need for welders.
The US market for 72-inch-wide material has been historically served by imports from Outokumpu, Aperam and Tisco.
The Marketing Path is Well Paved
Outokumpu need not reinvent a marketing strategy to sell 72-inch-wide products. They only need to look at one of their direct competitors, North American Stainless.
In fact, Outokumpu ought to adopt the NAS strategy for 60-inch wide. Let’s flash back in time to about 25 years ago. Nobody used 60-inch-wide material. 60-inch wide was sold at a premium above 48-inch wide. It made sense for NAS to sell 60-inch wide at the same price, or even a cheaper price, as it optimized the full width of its rolling mills. Once the price difference went by the wayside, there were no penalties for buying wider material. Guess what? The market took off. Outokumpu should be deploying the same strategy.
It’s a Big, Wide Market
The market for 72-inch wide remains untapped. As I visited customers while working for a service center, I became interested in how many had wide lasers or other processing equipment. Other markets such as carbon steel and aluminum use wide material. I saw that many customers had invested in new wider equipment. My hypothesis: I don’t think many buying organizations really know that 72-inch-wide material is produced domestically.
That domestic capability ought to attract the attention of large cold-rolled stainless steel buying organizations.
Instead of stainless mills fighting for the same piece of pie, they need to focus on their respective competitive advantages. Outokumpu ought to be filling one of its three cold-rolling mills with 72-inch-wide orders. We just haven’t seen much promotion of this capability. The same holds true for Allegheny Technologies. Although Allegheny’s hot-rolling mill can go to 78.74-inch-wide, none of their cold-rolling processes are built around it. So, the best they can offer is to be an alternative for 60-inch wide, which in itself is not a bad thing. From a buyer’s perspective, competition is always good.
What This Means for Buyers
Wider is definitely better when it comes to welding. Wider widths help to reduce the number of welds needed. The last time we checked, welders were in short supply.
It’s pretty simple, Outokumpu: get rid of that premium and start making it attractive for people to buy your products. We’re pretty sure that will help fill that mill!
Since we remain ever vigilant on DumpWatch here at the Metalminer week-in-review, we couldn’t help but be proud of India, US steelmakers and even the EU who grew a spine and said “no mas” to illegal dumping of steel from several nations, principally China. The petitioning nations’ steel industries deserve mad props for standing up for their markets.
China, you see, threw down the gauntlet two weeks ago when Ministry of Commerce spokesman Shen Danyang said the rise in steel exports from his country was due to higher global demand and was a natural result of Chinese steel products having “strong export competitiveness.”
“Export competitive” steel rod just looking for a new home somewhere other than China.
Ya Down With OPM (Other People’s Markets)?
Producing steel for overseas consumption to meet demand would be one thing but, as the American Iron & Steel Institutehas long protested, China’s steel companies are subsidized at the state and national levels meaning they can often undercut prices in countries they export to by charging cost or even less than the cost of production thanks to the subsidies and what some say is a purposely devalued currency. Read more
Remember that bounce we saw in most of the metal prices we track last month? Annnnd it’s gone.
The bearish environment our metals are up against resumed this month as the strong dollar erased nearly all of the gains from May. There were some positive outliers, though, with construction showing growth just as the summer building season begins in the US and the Global Precious Metals MMI was able to hold onto its May gains.
Check out the June MMI Report to get details on the fundamentals of all of the markets we track.