Stainless steel prices in Asia have plateaued for now.
But most suggest this is a temporary slowdown in advance of the Chinese New Year holidays.
Thereafter, the market is likely to continue its relentless rise of the last two years.
China stainless steel market ramps up output
According to ArgusMedia, China’s production, imports and consumption of stainless steel all rose in 2020. China produced 30.14 million tons of crude stainless steel in 2020, up by 2.51% from 2019.
Despite significantly higher nickel prices, output increases favored nickel bearing 300 & 400 series and even duplex stainless steel with only non-nickel-containing 200 series declining.
Meanwhile, imports surged to 1.81 million tons, up 61.33%. Much of those imports came from Indonesia, where Chinese firm Tsingshan Holding Group has a new mill. As such, imports from Indonesia rose 24.3% year over year to 1.1 million tonnes in the first nine months of 2020.
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.
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.
MetalMiner’s metals price landing pages (aluminum, steel and stainless steel) now feature the LME three-month prices set against MetalMiner’s track record, in addition to “should-cost” prices.
How much should your metals buy cost?
It’s a simple question that doesn’t always have a simple answer — or, at the very least, an answer that’s easy to get.
MetalMiner’s “should-cost” models aim to cut through the confusion and give buyers concrete ideas of what the products they’re buying should be costing them.
The MetalMiner should-cost models cover aluminum, steel and stainless steel.
So, what exactly do the models offer?
Aluminum should-cost model
With respect to aluminum:
Comprehensive price breakdowns, including conversion cost for specific grade, thickness and width.
In addition, the model is global; buyers can use from multiple regions.
Lastly, buying organizations can more effectively “lock” conversion costs.
“Many competitors publish the LME three-month price along with the MW premium,” MetalMiner CEO and Executive Editor Lisa Reisman recently noted. “Few, if any, publish the conversion adder based upon grade, gauge, width etc. The MetalMiner aluminum should-cost model provides a level of granularity not previously available in the marketplace.”
As for carbon steel, there is currently no North American price index for finished steel inclusive of adders and extras.
In addition, the carbon steel should-cost model includes:
Most steel contracts are agreed on the basis of base price, which provides little to no flexibility to negotiate on total price. The steel should-cost model provides a price breakdown for adders/extras, which can generate additional cost savings for steel buyers.
The model includes a price breakdown comparison of major U.S. steel mills. Buyers can use the information to negotiate annual sourcing contracts.
Furthermore, the model contains a high level of granularity for specific types of steel (examples of specificity can be found on our carbon steel price landing page).
What about stainless?
Similarly, there is currently no North American price index for stainless. In addition, the MetalMiner stainless should-cost model:
Contains a high level of granularity for specific types of stainless. Examples of specificity can be found on our stainless price landing page.
Second, the model features comprehensive price breakdowns (base price + gauge/width + finish + surcharge + vinyl + CTL).
Lastly, it provides better means of negotiating effectively with suppliers.
Stainless alloy surcharges are rising for the fourth month in a row.
Alloy surcharges for 304 in September will be $0.6231/lb, an increase of $0.0361/lb compared to August.
Over the past month, LME nickel prices increased approximately 12%, up to $15,442/mt by the end of August.
Chinese nickel price followed a similar trend, increasing to $17,590/mt (or CNY 120,750/mt).
U.S. demand recovery
Throughout July and August, the U.S. Department of Commerce reported the U.S. imported a total of 93,600 metric tons and 88,700 metric tons of all stainless products, respectively. The totals were twice as high as the year’s bottom of 46,800 metric tons back in May. Furthermore, the totals were much higher than the 2019 average of 64,600 metric tons.
Import levels reported match the expansionary track the U.S. has seen in the past four months.
August ISM PMI data came in at 56%, up 1.8 percentage points from July. Moreover, the ISM Manufacturing New Orders index came in at 67.6% in August compared to 61.5% in July.
Auto industry outlook
Besides consumer goods, the automotive industry is another major consumer of stainless steel.
As the U.S. presidential election approaches, both candidates have expressed their desire to boost the U.S. auto industry to create jobs.
A few particular differences could impact the price of stainless steel.
Asia in general and China in particular now dominate the stainless steel sector with the region producing 80% of stainless slab production in 2019. The largest players in the sector were China at 70% and India at 10%.
The region produced 39.5 million tons of stainless steel in 2018 and jumped to 41.9 million tons in 2019.
China led the ramp up, increasing production by 10%, followed by India and Indonesia (both up 5%). Meanwhile, others in the region — Japan, South Korea and Taiwan — declined. So, too, did Europe, which fell by 8%. The U.S.’s output also fell by 8%.
Steel consolidation drives China’s growth
It is not hard to see what is driving growth in China.
China Baowu Steel Group, the country’s top steelmaker by output, is itself the product of a consolidation of Baoshan Iron & Steel and Wuhan Iron & Steel in 2016, plus further additions since. Baowu has now absorbed stainless producer Taiyuan Iron & Steel (Group) Co Ltd(TISCO) by taking a 51% controlling stake.
No money has changed hands, Reuters reports. The deal is valued at 14.5 billion yuan ($2.10 billion) because it is a “state-backed re-structuring.”
A controlling stake in TISCO will help Baowu achieve a goal of producing 100 million tonnes of steel per year, Reuters reports. The deal will also allow it to “enhance its overall competitiveness in the stainless steel sector,” the company said.
But analysts are reported as saying the aim is also to provide better control of market prices.
China Baowu Steel will be second only to stainless steel market leader Tsingshan Holding Group in terms of global ranking.
To gauge the size of these state-engineered behemoths, TISCO may be No. 2. However, at 4.5 million tons of capacity, it is greater than half the size of Europe’s 7 million tons stainless steel production and nearly twice as large as the U.S.’s 2.6 million tons.
TISCO alone could meet all of the raw tonnage needs of North and South America — plus the rest of the world outside of Asia and Europe, with capacity to spare.
The economies of scale and market influence such size provides is significant, not just in setting domestic prices but in setting raw material prices for constituents like nickel, chrome, and molybdenum used in stainless alloying.
China is driving consolidation reportedly to achieve better environmental compliance and “to achieve orderly market competition.”
Make of that what you will in a state-controlled, centralist economy.
The MetalMiner metals price landing pages (aluminum, carbon steel and stainless steel) now feature LME three-month prices set against MetalMiner’s forecast track record, in addition to “should-cost” prices.
The pages can be found from the homepage’s top menu under “Metal Prices.”
As of this month, visitors to these pages can now find a modified, interactive price chart modeling the LME three-month price against the MetalMiner Monthly Outlook forecast track record and including MetalMiner buy signals.
“The main idea here is to showcase savings we can make for our customers if they use our Monthly Outlook,” said Marcos Briones Alvarez, MetalMiner’s procurement forecasting data analyst.
Particularly in a time of considerable volatility, it’s important to stay abreast of what’s going on in metals markets, from capacity developments to pertinent trade news to price drivers.
In addition, on a weekly basis the pages will feature updated “should-cost” metals prices by grade, width, gauge, etc.
In short, what “should” something — 5052 aluminum sheet, for example — cost?
“Many competitors publish the LME three-month price along with the MW premium,” MetalMiner CEO and Executive Editor Lisa Reisman notes. “Few, if any, publish the conversion adder based upon grade, gauge, width etc. The MetalMiner aluminum should-cost model provides a level of granularity not previously available in the marketplace. In addition, the aluminum model can be used by global market participants vs. only North American companies.”
Similarly, the new-look carbon steel page also differentiates itself from other offerings.
“All of the published price mechanisms currently available in the market involve the ‘base’ price (e.g., the HRC or the CRC number),” Reisman added. “However, no price index exists to see the total price computed with the base metal, plus all of the adders and extras at the grade level.”
The should-cost metal offers buyers additional granularity in the form of pricing by mill. In short, industrial buying organizations can arm themselves with the necessary knowledge to get the best possible deal (a topic we cover in our dedicated best practice library).
“Moreover, the MetalMiner carbon steel should-cost model allows the buying organization to quickly see which mill charges what price for each adder and extra,” Reisman continued. “So, in addition to providing a total price, the capability allows the buying organization to make a sourcing award decision by mill.”
Last but not least, the revamped stainless steel page also offers something no one else does.
“There is currently no North American stainless steel price index or mechanism for any buying organization to either: a) negotiate with suppliers or b) establish as a contracting mechanism,” Reisman added.
So what, exactly, makes the MetalMiner stainless steel should-cost model so unique?
“The stainless steel should-cost model provides the buying organization with visibility into all of the elements comprising total cost at the grade level (e.g., 304, 201, 439, etc.),” Reisman said.
Those elements can be broken as such: base price+width/gauge adders+finish+CTL (cut to length)+vinyl adders.
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.