(Editor’s note: The following is a guest post from C.J. Nord, C.P.M., CSCP, founder of the nonprofit Supply Chains for Good, and Harry Moser, founder and president of the Reshoring Initiative.)
Don’t hold out hope for the U.S.’s stainless steel shortage to get better until you know of new supply coming online.
There appear to be no plans in the works to increase domestic production. Supply may tighten even more than we have seen. This is similar in scale to the chip shortage.
Stainless steel shortage factors
Casimiro/Adobe Stock
Like almost all factory shortages, multiple factors have led to the stainless steel shortage.
The shortage became a national concern in January 2021, when ATI Metals took 304 stainless offline and shifted production to 316 grade.
The news of that change didn’t make it downstream. Our nation is still underinformed about the shortage of this type of steel. Stainless is critical for multiple applications in a broad range of industries.
The ATI change took roughly 30% of our nation’s supply offline. Furthermore, only about 10% has come back online (these are rough numbers based on our surveys of users and distributors).
If a mill decides to bring 304 online, it could take as much as a year for supply to reach the distributor level.
This morning in metals news: the European Commission this week announced anti-dumping duties for stainless steel cold-rolled flat products from India and Indonesia; the Energy Information Administration forecast crude oil prices will decline in 2022; and, lastly, U.S. housing starts declined in October.
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European Commission imposes AD duties on stainless from India, Indonesia
Andrey Kuzmin/Adobe Stack
On Thursday, the European Commission announced it is imposing anti-dumping duties on stainless steel cold-rolled flat products from India and Indonesia.
The duties range from 13.9-35.3% for the exporting producers from India. Meanwhile, the duties range from 10.2-20.2% for the exporting producers from Indonesia.
“This sector is critically important to the EU because it is a high value added product, with EU consumption totalling almost €7 billion,” the European Commission said Thursday.
The duties will protect 13,500 direct E.U. jobs in the stainless steel cold-rolled flat sector, the European Commission claimed.
EIA: crude oil prices to come down in 2022
Providing some relief, the Energy Information Administration forecast crude oil prices will soften in 2022.
The Stainless Monthly Metals Index (MMI) rose by 3.8% month over month.
Nickel continues to be within an overall uptrend. However, LME prices experienced significant volatility throughout October.
Prices dropped as low as $17,810/mt in the early days of the month before they spiked to $20,475/mt by Oct. 21. Prices have since retraced and appear to have consolidated near February highs.
As stainless steel demand increases while mill capacity remains steady, base prices and surcharges continue to increase.
Effective Nov. 1, Outokumpu announced a base price and extras increase, in addition to adding silicon to its alloy surcharge calculation. The increases affect the 200, 300, as well as 400 series.
Extras rose for products that impact productivity or add complexity to its mix, including tempers, width and gauges. Meanwhile, as ferrosilicon more than doubled in price since September, Outokumpu announced an adder for 301 Silicon followed by the implementation of a silicon component to its alloy surcharge. NAS’ November alloy surcharge for 304 also increased from October.
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China’s stainless output expected to rise
Amid the ongoing power crisis that caused metal prices to surge in October, China has eased power curbs in two key stainless-producing provinces.
North American Stainless (NAS) increased 304, 304L and 316L effective Oct. 1 by reducing the discount by two points. For 304, this is an increase of approximately $0.0350/lb.
NAS increased 430 and other 200 and 300 series by reducing the discount by three points. Non-430 ferritics will increase by $0.04/lb, which makes for a total increase in 2021 of $0.31/lb.
Furthermore, alloy surcharges are increasing in October. NAS’ October alloy surcharge for 304 is $1.0641/lb, a decrease of $0.0038/lb compared to September.
U.S. imports
U.S. stainless steel imports decreased by 6.7% from a value of $343.6 million to $320.5 million, according to US Census Bureau data from July to August.
While most forms of stainless steel imports declined, wire rods imports nearly doubled. Imports jumped by 57.6% to a value of $4.4 million during the same period.
When Chinese steel group Tsingshanannounced its Indonesian nickel operations would supply matte — a form of the metal used only for stainless steel production — to battery makers back in February, the news undercut the narrative that only refined nickel would be sufficiently high grade for the electric vehicle sector.
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The price proceeded to crash. Furthermore, he Chinese government’s decision May 1 to revoke the VAT tax rebate supporting exports of stainless-steel products removed a plank of support for metal exporters in a bid to help domestic consumers.
From a bear narrative of oversupply in the first half of this year the nickel market has swung dramatically to a bull story of rampant demand.
That demand, however, is from solid stainless steel consumption, not from last year’s expectation of battery demand.
China is largely driving the nickel price. A technical squeeze on the SHFE and strong physical demand, manifested by rising imports, are supporting the price.
A Reuters report explains how SHFE inventory had fallen to just 4,455 tons at the end of August. That marked its lowest level since the contract began in 2015.
The Stainless Monthly Metals Index (MMI) increased by 8.2% for this month’s reading.
Stop obsessing about the actual forecasted nickel price — it’s more important to spot the trend.
Outokumpu demand outlook
Stainless steel producer Outokumpureleased its half-year report, reporting that their sales increased by 16.8% for the first half of 2021 compared to last year.
The company said second-quarter stainless steel demand continued to be strong.
“Total stainless steel deliveries grew by 3% and realized prices for stainless steel increased in all regions compared to the previous quarter,” Outokumpu said.
Despite a growing first half, Outokumpu expects global apparent consumption of stainless steel flat products to fall by 0.4% in the third quarter of 2021 compared to the previous quarter. The company’s outlook is based on CRU latest estimates, which anticipates a decrease in consumption of 10.5% and 0.7% in EMEA and Americas respectively, while APAC is expected to increase by 1.6%.
Moreover, Reuters reported Outokumpu CEO Heikki Malinen sees “demand for stainless steel and ferrochrome continuing to be strong and delivery volumes falling only due to planned maintenance.”
MetalMiner stainless steel expert Katie Benchina Olsen expects a tight U.S. stainless flat-rolled supply through the rest of the year. That will continue into at least the second quarter of 2022, she says. Imports into the U.S. are also limited, as demand in home markets remains strong. In addition, shipping containers are in tight supply.
This domestic environment might keep stainless steel prices high through the first half of 2022.
Nickel price surge
Similarly to copper, market fundamentals have influenced nickel prices lately.
The nickel market recorded a deficit of 42,700 metric tons for the January to May period after an approximate surplus of 92,700 metric tons for all of 2020, according to the World Bureau of Metal Statistics (WBMS). While refinery output increased, demand has outpaced refined production, thus bringing prices up.
Chinese refined output for the January to May period increased by 44,000 metric tons compared to 2020, WBMS reported. Meanwhile, apparent demand reached 564,900 metric tons (123,000 metric tons higher than in the previous year). In Indonesia, production in the first five months of 2021 rose 49% year over year and demand more than doubled.
The nickel price has increased by 19.8% in the year to date, closing July at $19,855/mt.
Be prepared to use 304 for 301, 201 and even 430 applications
Manufacturers are being forced to buy 304 at the spot price in order to keep production lines running.
For example, 301, 201 and 430 are in short supply. In the past, another service center or mill could compensate for late contract orders. However, this is no longer the case. The aforementioned 301, 201 and 430 are only produced based on contractual commitments.
When the mill is late, the only alternative right now is 304 — at a huge price premium.
Ultimately, the global stainless supply shortage will impact such products as commercial ovens, which are usually made with 430. The price differential between 430 and 304 should theoretically be around $0.65/lb at present. In reality, however, buyers are paying around $2.00/lb more for 304 on the spot market compared to the 2021 430 contract price.
Manufacturers are being forced to choose high-priced 304 to remain in production or shut down lines until the contracted material arrives.
Actual metals prices and trends
The Allegheny Ludlum 304 stainless surcharge ticked up by 4.9% month over month to $1.07 per pound this month. Meanwhile, the Allegheny Ludlum 316 surcharge surged to $1.57 per pound.
Chinese 316 cold rolled coil increased 13.0% to $4,411 per metric ton as of Aug. 1. Meanwhile, 304 cold-rolled coil surged by 17.2% to $3,359 per metric ton. Chinese primary nickel surged by 6.5% to $22,458 per metric ton.
LME three-month nickel jumped 7.8% to $19,885 per metric ton.
Indian primary nickel rose by 10.2% to $20.05 per kilogram.
It is reassuring to see a metal price driven by good old fundamentals.
With so much buzz around supercycles and electrification, the impact of the speculative element in pricing has been much in evidence this year for products like copper and oil.
But according to a recent Reuters post, solid supply and demand fundamentals are driving nickel.
Supply and demand fundamentals pushing nickel prices
Oksana Kuzmina/Adobe Stock
A strong rise in the nickel price early this year resulted in the three-month LME quotation hitting a seven-year high of over $20,000 per ton before crashing back to $15,665 during the first half of March. Announcements by Tangshan Stainless in Indonesia that it would switch production of its refined nickel output to an EV cathode battery chemistry undermined the presumption of a looming shortfall in battery quality metal.
The narrative has since moved from nickel being a tight battery grade metal market to simply a tight refined metal market.
As steel prices continue to rally, stainless steel producers in China seem to be saving costs by replacing refined nickel with nickel pig iron (NPI). NPI is a lower-nickel-content substitute for refined nickel.
Satellite service SAVANT, which tracks smelter activity, reported that nickel smelting activity was lower than seasonally expected. The company claimed global nickel activity for June was at its lowest in five years.
At the same time, NPI smelting activity in China grew significantly, making April and June the highest readings in the past five years.
Tentative agreement between ATI, USW
After a three-months strike, Allegheny Technologies Inc (ATI) and the United Steelworkers (USW) reached a tentative agreement on July 2.
The agreement includes onetime payments, wage increases and a premium-free health insurance plan for union members. As soon as the agreement is signed, USW members are expected to resume work.
The strike affected approximately 1,300 workers in specialty rolled products locations across nine locations: Brackenridge, Latrobe, Natrona Heights, Vandergrift, Washington (Pennsylvania), Lockport (New York), Louisville (Ohio), New Bedford (Massachusetts) and Waterbury (Connecticut).
The specialty rolled products include a variety of stainless steel sheets, specialty coils, cold rolled stainless steel, and stainless and specialty alloy plates. More specifically, these plants produce: light gauge cold rolled stainless steel strip; titanium strip and sheet; nickel; precision rolled strip; cold rolled stainless; and alloys, such as high-temperature, corrosion-resistant, nickel-based and duplex.
As MetalMiner previously reported, the ATI strikes constrained U.S. stainless flat-rolled supply. For months, industrial metal buying organizations faced serious challenges in purchasing metal, not only due to the supply constraint but also because stainless steel prices are at an all-time high. In addition, soaring freight rates have also made imports a costly proposition.
Base price consolidates
After U.S. mills announced their fourth base price increase of the year in June, no further increases were announced for July.
U.S. mills have increased prices on products, which reduce available production capacity. Alloys other than 304, 304L and 316L have been subject to greater increases. Non-standard widths and light gauge extras have risen several times in the last six months.
Buyers should expect additional extras increases as mills continue to optimize their product mix to maximize volume.
Alloy surcharges are increasing in July. NAS’ July alloy surcharge for 304 is $0.9930/lb, an increase of $0.0318/lb compared to June.
Actual metals prices and trends
The Allegheny Ludlum 304 stainless surcharge ticked up by 3.0% month over month to $1.02 per pound this month. Meanwhile, the Allegheny Ludlum 316 surcharge surged to $1.45 per pound.
Chinese 316 cold rolled coil dropped 0.6% to $3,903 per metric ton as of July 1. Meanwhile, 304 cold rolled coil climbed 2.5% to $2,865 per metric ton. Chinese primary nickel surged by 0.5% to $21,093 per metric ton.
LME three-month nickel jumped 3.3% to $18,440 per metric ton.
Indian primary nickel declined by 1.4% to $18.20 per kilogram.
The Stainless Monthly Metals Index (MMI) increased by 4.3% for this month’s reading, as stainless steel demand is likely to continue to grow in the years ahead.
According to International Stainless Steel Forum (ISSF) data, stainless steel melt shop production increased by 24.7% year over year to 14.5 million metric tons through the first quarter of 2021.
Most of the production increase came from Europe and the U.S., where production jumped by 11.0% and 9.7%, respectively. The only region that saw a production contraction was China. China’s production fell by 0.5% to 8,198,000 metric tons.
This coincides with a report by Precedence Research, in which it estimates the stainless steel market size to increase to U.S. $168.24 billion by 2027 from U.S. $106.84 billion in 2019.
Precedence anticipates a 57.5% increase over the eight-year period due to the growing preference for stainless steel over ordinary steel and its increasing application in pre-engineered buildings. Additionally, demand for steel from construction and automotive and transportation sectors is expected to keep growing.
In late March, the United Steelworkers union announced a strike at nine Allegheny Technologies Inc. (ATI) facilities. The union cited “unfair labor practices” in its announcement of the strike.
Over six weeks later, the labor stoppage has yet to reach a conclusion.
Meanwhile, late last month, ATI reported its first-quarter financial results. The firm reported a net loss of $7.9 million for the quarter, compared with a net loss of $1.1 billion in Q4 2020.
In Q1 2020, the firm reported net income of $23.6 million.
In its earnings report, the firm expressed “disappointment” in the union’s decision to strike.
“While we are incredibly disappointed that the USW leadership decided to strike our Specialty Rolled Products locations beginning in late March, we remain committed to our business continuity plan to safely operate in a way that allows us to deliver to our customers on our quantity and quality commitments during this strike,” President and CEO Robert S. Wetherbee said. “Our operating teams are committed to minimizing the operational interruption and financial impact from the strike as we seek to reach a fair and equitable settlement with our striking workers.”
Meanwhile, in a bargaining update released Thursday, May 13, the union said it had not heard back from ATI management regarding a proposal it made May 6.
“The issue of profit sharing has been a subject of discussion throughout our negotiations with ATI,” USW said in the statement. “We have shown the company that we are willing to be flexible, but the current offer by ATI eliminates profit sharing and replaces it with 3% wage increases in the 2nd, 3rd and 4th years of the contract. After going without a wage increase since 2014, obviously such an offer is unacceptable.”
