Stainless Steel

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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.

Make sure you are following the five best practices of sourcing stainless steel. 

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 Stainless Monthly Metals Index (MMI) increased by 4.5%, as stainless flat rolled base prices continue to move upward due to extended lead times and limited domestic capacity (following a similar trend with steel prices).

Stainless steel producers raise prices

Stainless steel producers North American Stainless (NAS) and Outokumpu announced price increases effective for February deliveries.

Both producers announced a two-discount-point reduction for standard chemistry 304, 304L and 316L. For 304, the base price increase amounts to approximately $0.0350/lb.

Outokumpu diverged from NAS, as it increased all other 300 series alloys, 200 series and 400 series by reducing the functional discount by three points. In addition, Outokumpu also will be implementing a $0.05/lb adder for 21 gauge and lighter.

As the only producer of 72″ wide in North America, Outokumpu increased its 72″ wide adder to $0.18/lb.

Along with rising base prices, alloy surcharges are rising for the third month in a row. February alloy surcharges for 304 will be $0.8592/lb, an increase of $0.0784/lb compared to January.

Both NAS and Outokumpu are also revising their equalized freight rates, which take effect in March.

Are you under pressure to generate stainless steel cost savings? Make sure you are following these five best practices. 

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A budgetary proposal by the Indian government to reduce steel duties has divided the Indian steel sector.

India proposes reduction in steel duties

In her 2021 budget speech presented in parliament earlier in the week, Finance Minister Nirmala Sitharaman proposed reducing customs duty on imports of semi-flat steel. She proposed cutting the duy for the steel, used to make ships, bridges, line pipes and other equipment, from 12.5% to 7.5%.

Furthermore, the customs duty on longs — used to make rails and wire rods — may also be reduced from the present 10% to 7.5%.

Another proposal called for revoking anti-dumping and countervailing duties on straight length bars and rods of alloy steel, high-speed steel of non-cobalt grade flat-rolled product of steel, plated or coated with an alloy of aluminum or zinc.

At least initially, the move could be interpreted as India opening its doors to cheaper steel and reducing the tax on shipments of the alloy amid surging prices at home.

The chief executives of some of global steelmakers such as JSW and Tata Steel have opined that this would not allow any increase of flow in these steel items. Meanwhile, others fear it will have a negative impact on the profitability of domestic players.

The MetalMiner Best Practice Library offers a wealth of knowledge and tips to help buyers stay on top of metals markets and buying strategies.

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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.

Do you know the five best practices of sourcing metals, including stainless steel?

Declining exports

Exports, on the other hand, declined. Trade disputes between China and the United States, the European Union, Japan and South Korea led to the imposition of duties on shipments.

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The Stainless Monthly Metals Index (MMI) increased by 5.3% for this month’s index value, as this month we touch on Chinese stainless production, South Africa’s proposed chrome export tax and more.

Upcoming negotiation on your stainless steel buy? Make sure you know how your service centers will negotiate with you. 

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.

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

Do you know the five best practices of sourcing metals, including stainless steel?

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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This morning in metals news: investor service Moody’s upgraded its global steel sector outlook from negative to stable; the E.U. slapped duties on stainless steel from China, Indonesia and Taiwan; and the American Iron and Steel Institute reported September import market share in the U.S. reached 16%.

Are you under pressure to generate steel cost savings? Make sure you are following these five best practices!

Moody’s steel outlook

Moody’s upgraded its steel outlook from negative to stable, the investor service said Wednesday.

“Demand is improving from lows on easing of coronavirus lockdowns, production resumption in key end markets such as automotive, and stronger economic data — particularly in China,” Moody’s said in a release. “Improving second half conditions and our expectation of acceleration from low levels in 2021 underpin the outlook, although risks remain should there be a resurgence of the virus.”

Rising prices and capacity utilization rates, plus stronger demand, powered the move back up to stable for the U.S. steel sector, Moody’s noted.

E.U. adds duties on imported stainless

Meanwhile, the E.U. has imposed duties on stainless steel imported from China, Indonesia and Taiwan, Reuters reported.

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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.”

Carbon steel

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).

Stainless steel

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.

For more information about the MetalMiner Insights platform and should-cost models, visit the MetalMiner Insights landing page. 

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The Stainless Monthly Metals Index (MMI) increased by 11.3% for this month’s index value, as stainless steel surcharges rose for a fourth consecutive month.

Upcoming negotiation on your stainless steel buy? Make sure you know how your service centers will negotiate with you.

Stainless steel surcharges continue to increase

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.

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The headline sounds somewhat melodramatic.

But the numbers laid out in the World Bureau of Metal Statistics’s annual stainless steel report suggest the reality is not far from it.

Upcoming negotiation on your stainless steel buy? Make sure you know how your service centers will negotiate with you. 

Domination of the stainless sector

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.

Beijing is actively pushing consolidation of the massive state sector, as a recent Reuters article illustrates.

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.

Are you prepared for your annual stainless steel contract negotiations? Be sure to check out our five best practices.