nickel

nickel

leszekglasner/Adobe Stock

Stainless steel producers have been caught in a pincer movement over the last year of rising nickel prices but falling demand.

It is a counterintuitive situation until you factor in China’s stainless production. Chinese output rose by 4% in the third quarter of last year compared to the rest of the world, which fell by 9%. The disconnect between China and the rest of the world is driving a complex dynamic in the nickel market.

The result is rising LME inventory of refined metal while, at the same time, prices are pushing close to 17-month highs at $18,675 per metric ton, Reuters reported.

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China’s history of nickel imports

Historically, when China’s stainless producers are running hot they suck in refined nickel imports (much as they have done over the last year on aluminium and copper).

But in nickel’s case, the imports are booming for raw materials, nickel pig iron (NPI) and ferro nickel (FeNi), due in large part to Indonesia’s export ban on ores and the resulting investment made in NPI production in Indonesia by Chinese producers.

China’s imports of NPI and FeNi have boomed. Imports totaled 3.4 million tons in 2020, up 80% from 2019. Indonesia made up the lion’s share of those imports. China imported 600,000 tons from the country in 2018 and 2.7 million tons in 2020.

Ores and concentrates, by comparison, have fallen with the Philippines and New Caledonia unable to make up the shortfall. As such, imports have slumped by 30%.

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The Renewables Monthly Metals Index (MMI) rose by 4.4% this month, as the Energy Information Administration released a forecast on renewable energy.

February 2021 Renewables MMI chart

(Editor’s note: This report also includes the MMI for grain-oriented electrical steel, or GOES.)

Renewable energy growth in the US

renewables

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US electricity generation from renewable energy sources is forecast to double over the next 30 years, according to the Energy Information Administration.

Renewable energy sources accounted for 21% of US electricity generation in 2020.  The EIA forecasts that percentage will reach 42% by 2050.

The renewable energy increase will come on the back of declining coal and nuclear power usage, the EIA said. Furthermore, wind power will account for the majority of renewable energy gains until 2024.

After that period, however, solar power will take over the majority of the gains.

“After the production tax credit (PTC) for wind phases out at the end of 2024, solar generation will account for almost 80% of the increase in renewable generation through 2050,” the EIA said. “Based on the Internal Revenue Service safe harbor guidance, EIA assumes that utility-scale solar PV facilities will receive a 30% investment tax credit (ITC) through 2023, which will then be reduced to 10% beginning in 2024.”

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import tariff

Dmitry/Adobe Stock

This morning in metals news: the U.S. announced it will adjust its tariffs on E.U. products imposed last year; the U.S.’s renewable energy consumption surpassed that of coal for the first time since before 1885; and metals prices have retraced slightly this week.

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U.S. adjusts tariffs on E.U.

Last year, a WTO ruling authorized the U.S. to impose up to $7.5 billion worth in tariffs on E.U. products. The ruling came as a result of the long-running saga over government subsidies for Airbus in Europe.

Yesterday, the United States Trade Representative (USTR) announced the U.S. will adjust the previously announced tariffs, citing the scope of the E.U.’s countermeasures that hit against U.S. subsidies of Boeing.

“In September, 2020 the EU was authorized to impose tariffs affecting $4 billion in U.S. trade as a result of related WTO litigation,” the USTR said in a release. “In implementing its tariffs, however, the EU used trade data from a period in which trade volumes had been drastically reduced due to the horrific effects on the global economy from the COVID-19 virus.  The result of this choice was that Europe imposed tariffs on substantially more products than would have been covered if it had utilized a normal period.  Although the United States explained to the EU the distortive effect of its selected time period, the EU refused to change its approach.”

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steel

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This morning in metals news: the U.S. steel capacity utilization rate reached 71.5% last week; the Energy Information released its monthly energy review; and the nickel price continues to move upward.

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Steel capacity utilization rate hits 71.5%

The U.S. steel capacity utilization rate hit 71.5% for the week ended Nov. 21, the American Iron and Steel Institute (AISI) reported.

U.S. steel output for the week totaled 1.58 million net tons, up 0.1% from the previous week but down 13.2% year over year.

For the year through Nov. 21, U.S. output totaled 70.5 million net tons, down 18.6% year over year.

EIA releases monthly energy review

Aside from steel capacity utilization, the EIA released its Monthly Energy Review today, reporting total energy production of 64.46 quadrillion btu through the first eight months of the year.

Fossil fuel production totaled 50.93 quadrillion btu during the period. Meanwhile, nuclear energy production reached 5.57 quadrillion btu and renewable energy production totaled 7.96 quadrillion btu.

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nickel

leszekglasner/Adobe Stock

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.

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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.

On a month-over-month basis, nickel is up 6.8%.

Reliance releases Q3 results

In its Q3 financial results, Reliance Steel and Aluminum posted pretax income of $127 million, up from $102 million in Q2 2020.

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stainless steel

Maksym Yemelyanov/Adobe Stock

The Stainless Monthly Metals Index (MMI) decreased by 3.8% for this month’s index value, as U.S. stainless imports surged last month.

October 2020 Stainless MMI chart

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U.S. stainless imports rise 76%

The U.S. Department of Commerce reported the U.S. imported a total of 91,600 metric tons of all stainless products during September.

The September total marked a 76% year-over-year increase. In addition, the September total marked a 42% increase from the 2019 average of 64,600 metric tons.

The higher-than-usual import total is in line with the unexpected demand increase in major appliances, which use stainless steel sheets.

The U.S. market has a shortage in most appliances. This is due to customers storing larger amounts of food, plus shutdowns or personnel reduction manufacturers undertook for a few months. Additionally, manufacturers did not ramp up production to full capacity due to economic uncertainty.

These circumstances created a production backlog that might last well into 2021 and kickstart demand for stainless steel.

However, not all stainless products have recovered.

Outokumpu announced its intention to scale down its long products business, which includes wire rod, wire, bar, rebar and semi-finished long products.

The decision comes after the business made small net sales and negative adjusted EBITDAs. The scaledown measures include: personnel reduction, increasing operational efficiency and focusing on higher-value specialty grades.

E.U. imposes tariffs

Earlier we touched on U.S. stainless imports, which posted significant gains in September.

Meanwhile, the European Commission decided to impose import duties on hot-rolled stainless steel coil and sheets from China, Indonesia and Taiwan.

The tariffs from China are up to 19%. Meanwhile, they go up to 17.3% for Indonesian products and up to 7.5% from Taiwan. The tariffs kicked in Oct. 8.

The Commission made the decision after conducting an investigation. The probe ultimately determined the products were sold at artificially low prices, hurting producers from Belgium, Italy and Finland.

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There is a looming crisis in the nickel market.

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.

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alumina refinery line

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.

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Global alumina production rises in August

Global alumina production in August reached 11,366 metric tons, the International Aluminum Institute reported.

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.

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All the base metals have been lifted by an expected end to lockdowns and a pickup in activity, particularly in China this quarter.

The weakening U.S. dollar has added a further fillip in recent weeks.

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stainless steel

Maksym Yemelyanov/Adobe Stock

The Stainless Monthly Metals Index (MMI) increased by 3% this month after holding flat for two consecutive months.

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