Stainless MMI: Stainless Remains a Buyer’s Market Amid Flat Global Demand Projections

The Stainless Monthly Metals Index (MMI) rose a modest 0.67% from April to May. Following increased volatility over the last few months, nickel prices began to slow down in terms of sharp breakouts or breakdowns. As a result, the larger sideways trend continued with no clear direction. 

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Stainless Remains a Buyer’s Market

For months, buyers have had the benefit of opportunistic pricing on transactional stainless 304 business. Inventories throughout the entire supply chain continue to be working their way down. Service centers continue to compete against each other at tight margins which should continue for a couple more months. U.S. flat-rolled mills have short lead times and have broadened the product portfolio to light gauges and slit widths. Import offers abound although recent import figures show that buyers are shying away in order to minimize risk.

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WorldStainless Expects Stainless Consumption to Remain Flat in 2023

Stainless steel prices continue to drift sideways, while high inventories among service centers and consumers suggest that stainless remains a buyer’s market. According to WorldStainless, global consumption will expectedly see zero year-over-year growth in 2023 amid ongoing macroeconomic pressures. Notably, cold rolled stainless demand will show the most weakness among stainless products, with a forecasted 0.2% year-over-year decline.

While overall growth will remain flat, the outlook appears uneven globally. In Europe and Africa, stainless cold rolled consumption will fall by 9.1% in 2023 following a 6.1% rise in 2022. The Americas will also see a contraction, with a 4.4% year-over-year decline. A projected 1.3% rise in China and a 4.5% rise throughout the rest of Asia will help offset the weakness throughout the West. By 2024, however, all regions are forecasted to see demand grow. Respectively, consumption will rise by 4.5%, 4.4%, 4.1% and 2.2% in Asia, the Americas, Europe and China. This will translate to a 3.2% global rise in cold rolled stainless steel consumption during 2024.

For prices, declining western demand will likely rule out any significant rebound in the coming months. Persistently high inventories appear due to exacerbate this. The status of China’s ongoing recovery will also have an impact and leaves an element of uncertainty for the overall outlook. China’s growth thus far has largely benefited the services sector rather than being commodity driven as seen in recoveries past. 

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Nickel Prices: Class II Nickel Surplus, While LME Stocks Slide

Nickel prices continue to trend toward bifurcation amid a production boom in Indonesia. In its latest press release, the International Nickel Study Group (INSG) predicted the surplus to more than double from 105,000 tons in 2022 to 239,000 tons in 2023. While in surplus, much of the boost will come to the Class 2 market, which will not necessarily benefit Class 1 LME prices. Class 1 nickel, which is deliverable to the LME, requires a 99.8% or better purity standard. However, Class 2 essentially refers to a nickel-containing by-product, including nickel pig iron (NPI) and ferronickel. The current boom in Indonesian production will benefit the latter of the two.

The country’s mine production rose by 48% in 2022. This was enough to make Indonesia the largest global producer, accounting for roughly half of all output. This has a huge impact on nickel prices. Indonesia’s nickel processing also soared during the year, with a 32% rise in the production of NPI. According to estimates from Reuters, “around 70% of the physical nickel supply chain is now priced at a discount to the LME benchmark.”

Alongside the Class 2 boom, LME nickel inventories continue to slide. Stocks now sit at their lowest level since November 2007. Throughout April alone, stocks fell roughly 10%. Prices have shown little concern over the tightening market, although it does pose an upside risk. Prices moved mostly sideways over recent months following a sharp 15% drop during February, as markets appear more concerned about a projected slowdown in the West.

LME Adds New Rules Following Rocks Scandal and Reaction of Nickel Prices

The London Metal Exchange (LME) recently announced that it would implement stricter rules for handling nickel in its warehouses. The move came after the shocking discovery that some nickel contracts used bags of stones for backing instead of actual metal. Nickel prices experienced some volatility as a result. The LME will now require warehouse companies to conduct additional checks to prevent similar incidents. These measures include using magnets and metal detectors to confirm the presence of metal. Workers will also employ “touch inspections” to verify the size and shape of the material inside the bags.

The incident occurred when 54 tons of “nickel” held in a Rotterdam warehouse owned by JPMorgan Chase & Co. turned out to be bags filled with stones. The majority of nickel in the LME is stored in bags, and the incident went undetected for an extended period because the bags are typically weighed only once upon entry to the warehouse. The LME’s new rules, specifically addressing nickel stored in bags, aim to prevent such occurrences by mandating additional checks during delivery, warranting, re-warranting, and weighing of bags as they leave the LME system to ensure accuracy and maintain trust in the system.

LME’s Nickel Volumes

Although the amounts involved were small, it shook traders’ confidence in the LME and nickel prices. Indeed, the organization previously had a reputation for reliable contracts in an industry susceptible to fraud and theft. That said, the event did not translate to any loss of liquidity. In fact, trading volumes averaged slightly higher in April, with the rocks scandal occurring in March. Nonetheless, nickel remains the worst-performing contract on the LME. As trading volumes are just over a third of what they were before the nickel crisis in March 2022, ongoing issues with the LME’s nickel contract continue to prevent any meaningful return of market participation. This poses a significant risk to its future as a benchmark for pricing.

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Biggest Nickel Prices and Stainless Steel Price Moves

• Chinese ferromolybdenum lump prices saw the largest month-over-month increase in the index. Prices rebounded with a 23.86% rise to $29,619 per metric ton as of May 1.
• Chinese 316 cold rolled stainless prices rose 5.27% to $2,787 per metric ton.
• Meanwhile, Chinese ferrochrome lump prices declined by 6.33% to $1,343 per metric ton.
• The U.S. Allegheny Ludium surcharge saw an 11.36% drop to $1.98 per pound. 
• Indian primary nickel prices fell 18.27% to $24.39 per kilogram.