This morning in metals news: U.S. steel imports were down by 22.2% year over year through the first 10 months of 2020; German steelmaker Thyssenkrupp AG is seeking state aid; and the nickel price has bounced back in November after falling during the second half of October.
This morning in metals news: the nickel price has gained to start the week; Reliance Steel and Aluminum Co. recently released its Q3 results; and, finally, the U.S. imported $19 billion in energy goods from Mexico last year.
The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.
Nickel price gains
The LME three-month nickel price gained over the first two sessions of the week.
Closing Tuesday at $15,384 per metric ton, the LME three-month nickel price gained $236 per metric ton over the previous 24 hours.
Some would argue it’s a good problem to have. Demand is set to rise on the back of increasing uptake of electric and hybrid vehicles through this decade. More and more governments will mandate the production of electric vehicles (EVs) over internal combustion engine (ICE) autos. In parts of Europe, there will be outright bans on new ICE vehicles inside 10 years.
However, if nickel supply becomes constrained, consumers are going to pay the price.
Nickel market numbers
It should be said that today the problem barely registers as a price lever.
According to a recent McKinsey report, the stainless steel industry consumers 74% of nickel produced today, dwarfing the 5-8% going into batteries.
But the type of nickel required for battery production is what makes supply so sensitive in the future.
As the report explains, there are two types of nickel. Class 1 predominantly comes from the concentration, smelting and refining of sulfide ores. Meanwhile, Class 2 comes from ores, called saprolites and limonites, with higher iron and other (for batteries) levels of contaminants, such as copper.
So, whereas the stainless steel industry, to a large extent, can use a mix of Class 1 and Class 2, the battery industry draws its raw material from just Class 1, representing a more restricted 46% of the nickel supply market.
Worse, after the all the focus on the cobalt market — with its environmental, social, and corporate governance (ESG) concerns from countries like the Democratic Republic of the Congo — major consumers like Tesla are keen to establish long-term supply arrangements with nickel producers in sustainable locations with more robust ESG standards.
Norsk Hydro’s Alunorte alumina refinery. Source: Norsk Hydro
This morning in metals news: global alumina production rose 2.7% year over year in August; China’s industrial profits fell through the first eight months of the year; and nickel prices have taken a dive over the last month.
Production of the aluminum raw material was about flat with the previous month. However, August production rose 2.7% year over year, up from 11,079 metric tons in August 2019.
Meanwhile, China’s alumina production totaled 5,910 metric tons in August.
Chinese industrial profits down 4.4%
Although China has bounced back economically in many respects, its industrial profits fell 4.4% during the first eight months of the year, the National Bureau of Statistics of China reported.
As for metals sectors, profit from the ferrous metal smelting and processing industry decreased by 23.1%. Nonferrous metal smelting and processing industry profits fell 5.6%. Non-metallic mineral products industry profits decreased by 3.8%.
Nickel price falls
After rising consistently since late March, the nickel price took a step back in September.
The LME three-month nickel price closed Monday at $14,405 per metric ton, or down 5.52% compared with a month ago.
The price surged as high as $15,671 per metric ton as of Sept. 2, the high for 2020. As for the 2020 low, the LME three-month zinc price dipped as low as $11,142 per metric ton March 23.
The Mines and Geosciences Bureau reported that Philippines nickel exports declined by 28% year on year to 102,310 tons during the first half of the year.
The export decline made waves on the LME and SHFE, where the nickel price increased.
Top producers reassured the market that no further disruptions are anticipated for the remainder of the year, despite coronavirus cases having increased since the first half of the year.
Moreover, the largest exporter of high-grade nickel, SR Languyan Mining Corp, will likely deplete by the end of this year, according to the Ministry of Environment and Natural Resources of the region. This would mean the Philippines may fail to keep up with their current exports to China, further supporting the nickel price.
Demand in China has remained high. Macquarie analyst Jim Lennon estimated Chinese mills produced 2.88 million tons of stainless steel in July, or a 4.8% year-over-year increase. High-nickel containing 300-series grades of stainless grew 17.5% year over year to 1.46 million tons in July (an all-time high).
However, Lennon still expects a nickel ore surplus of around 100,000 tons for 2020.
Some demand recovery in the U.S.
The Association For Manufacturing Technology (AMT) reported U.S. manufacturing technology orders in June increased to $346.7 million, 56% more than the previous month. June orders, however, increased just 6% from June 2019.
Orders from January to June totaled $1.69 billion in 2020, down 26% year over year.
According to the AMT, manufacturing technology encompasses metal cutting, forming and fabricating. One of the industries that saw the largest order increase was the automotive sector, which almost doubled orders from June 2019. Meanwhile, agricultural equipment manufacturers nearly quadrupled and manufacturers of HVAC and commercial refrigeration equipment more than tripled orders for manufacturing technology.
The AMT expected a similar amount of orders for the month of July as demand bounces back.
Actual metals prices and trends
The Allegheny Ludlum 316 stainless surcharge declined 1.6% month over month to $0.79/pound. The 304 surcharge rose 0.8% to $0.61/pound.
LME primary three-month nickel rose 7.5% to $13,806/mt.
Chinese 316 and 304 cold-rolled coil rose to $2,923.63/mt and $2,106.74/mt, respectively.
Chinese primary nickel rose 8.0% to $15,592.71/mt. Indian primary nickel rose 7.4% to $13.85/kilogram.
Reuters reported that just a few weeks ago market surpluses were expected. In a recent poll of analysts, the median nickel market balance forecast for this year was a surplus of 89,000 tons, while Russian producer Norilsk Nickel last week came out with an even heftier surplus estimate of 149,000 tons.
We observed last month that the peak had passed in nickel prices and earlier suggestions from some quarters that nickel may hit $20,000 per ton were highly unlikely.
Any stainless consumers taking that on board and living hand to mouth will have seen surcharges come down and should have been able to trim stocks in line with falling input prices. Anyone who committed to bulk buys in Q3 will now be sitting on high-price stock as the nickel price — and with it stainless surcharges — continues to ease.
MetalMiner’s Monthly Metal Buying Outlook offers more in-depth advice as to how to react to the nickel price falls and the current market (at least for those who are subscribers).
But the question on many buyers’ minds may be where is it all going from here?
It helps to better understand what has driven the price in recent months.
The LME nickel price has risen 54% since the start of the year, Reuters reported, driven in large part by a perceived supply shock in the form of an accelerated ban on the export of Indonesian nickel ore (a key raw material for Chinese pig iron and stainless-steel makers).
Further support for the nickel price has come in the form of a sustained outflow of refined nickel from LME warehouses, even since September inventory has continued to leave with live warrants down to just 42,000 tons from over 200,000 tons at the start of the year.
The supply-side picture sounds supportive; however, as we wrote last month, the problem is demand.
The market continues to worry about the trade war impacting Chinese manufacturing and, hence, demand, despite the Financial Times reporting this week that Chinese manufacturing expanded at the fastest pace in three years last month. The demand backdrop, though, is one of almost unending doom; reports of high stainless-steel inventory in China are not helping price sentiment.
The risk remains to the downside, which is not what those holders of high-price stock would want to hear. However, for the time being, the nickel price seems to be following the rest of the metals sector: at best sideways and at worst toward further weakness.