Stainless MMI: Top producer South Africa proposes chrome export tax

Chinese stainless steel market

The Stainless Steel Council of China Special Steel Enterprises Association anticipated domestic stainless steel production to increase by 2.1% at the end of 2020. The increase would bring total output to more than 30 million metric tons.
High demand incentivized production. Apparent stainless steel demand for 2020 is expected to rise by 6.4% to 25.5 million metric tons.
Besides producing stainless steel, China also imports significant quantities.
Most stainless steel imports come from Chinese mills in Indonesia such as Tsingshan Holding Group. China imported 1.1 million metric tons of stainless steel in the first three quarters of the year, a 24.3% increase compared to 2019.
Furthermore, China exported 2.37 million metric tons during the same period, a 12.4% decline from 2019.

South Africa chrome export tax

The world’s largest chrome producer, South Africa, proposed an export tax on chrome ore.
The export tax could have a significant impact for China, as 83% of its chrome ore imports came from South Africa in 2019.
The chrome export tax aims to incentivize the production of ferrochrome in South Africa. However, building or expanding chrome smelter capacity in South Africa could be challenging in the country, as smelters are highly power intensive.
The country already battles with unreliable electricity supply, which makes production more costly.
If South Africa approves the chrome export tax, stainless steel prices could go up as production costs rise.
The chrome export tax is not likely to impact stainless steel prices in 2020. However, the tax may have an impact on the first quarter of 2021.

Nickel outlook

As mentioned above, China does not seem to be slowing down its stainless steel production.
Moreover, a few steelmaking Chinese companies, such as Tsingshan Holding Group and Delong Holdings have invested U.S. $16 billion. They also plan to invest, along with other firms, approximately U.S. $20.9 billion by 2024 and U.S. $35 billion by 2033.
The investment will aim to expand nickel production for steelmaking — which currently accounts for nearly 70% of nickel consumption — and, eventually, for electric vehicle batteries.
This type of investment may help ensure the steel market does not compete with the electric vehicle market for nickel supply.

Surcharges decline

Stainless alloy surcharges declined after increasing for five straight months.
Alloy surcharges for 304 in November will be $0.6672/lb, a decrease of $0.0130/lb compared to October.
Throughout October, LME nickel prices increased nearly 6.0% to $15,289/mt. The Chinese nickel price followed a similar trend, increasing to $17,953/mt (or CNY 120,550/mt).

Actual metals prices and trends

The Allegheny Ludlum 316 stainless surcharge decreased 1.1% month over month to $0.92/pound. The 304 surcharge dropped 2.8% to $0.69/pound.
LME primary three-month nickel increased 5.4% to $15,289/mt.
Chinese 316 cold-rolled coil rose to $3,152.69/mt. Meanwhile, Chinese 304 cold-rolled coil rose to $2,368.25/mt.
Chinese primary nickel increased 5.3% to $17,646.09/mt. Indian primary nickel rose 6.2% to $15.26/kilogram.
FeCr lumps increased 1.6% to $1,553.93/mt. As noted earlier, it remains to be seen if South Africa will go forward with its proposed chrome export tax.
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