Quarterly Report – September/October 2019

With nickel rising from a June level of US$ 13,500 per tonne to a September high to date of approximately US$ 18,600, this has brought back memories of 2006 and roaring demand for stainless. This time around, however, the stainless steel sector is plagued by overproduction in Indonesia, which with its raw material advantage is taking centre-stage and pushing hard to increase its world stainless market share. This time around, nickel price movements are based on the Utopia of Indonesia banning nickel ore exports and of electric vehicle production growth.

Owing to Indonesia taking market share from South Korea and Taiwan, demand for scrap from mills in these two countries turned out to be weaker than anticipated in the third quarter of 2019; for the fourth quarter, mills are forecasting an even bleaker situation. Japan’s stainless demand has gone from low to a standstill owing to the conclusion of Olympics-related orders. Coupled with the reduced scrap intake by major mills in South Korea, Japan’s consumption needs will be fully satisfied by domestic stainless scrap.

Meanwhile, India has reduced its demand for imported stainless scrap over the past two months, with mills claiming to have obtained cheaper scrap locally on credit terms while large volumes of nickel pig iron and ferro-nickel have been used as an alternative to scrap. The currency devaluation factor is a very big problem for which the mills have no other solution than to hold off from purchasing imported scrap. Indian banks are also being extra-careful after a few major loan scams came to light, with the result that even the opening of simple letters of credit is taking longer than necessary and adding to the severe pressure under which mills already find themselves.

Focusing on the fourth quarter, hopefully we will see an end to the US/China trade war and other “black swan” events. The high nickel price is certainly not assisting the stainless sector, so hopefully all the macro uncertainties will be removed for stainless demand to increase in Asia.

Nickel has become a beast in its own right whereas the stainless world is still struggling with actual oversupply.