Quarterly Report – April 2020

The last two months have brought a series of unprecedented events, including the COVID-19 pandemic, lockdowns, flash crashes and an oil tug-of-war. Now at the time of writing, oil futures have become negative, meaning that producers are willing to pay you to use the oil or to take it off their hands.

From February, nickel touched a mid-term low around US$ 10,800 per tonne and then started to crawl back towards US$ 12,500. Nickel demand for the stainless steel market is now expected to suffer a small contraction this year and only a small expansion is envisaged for the electric vehicle market. However, the twist is that nickel’s supply chains are also being disrupted, with the Philippines’ major ore miners in shutdown and Indonesia at risk of the same.

In the first quarter of 2020, Taiwanese and South Korean mills’ demand for scrap was stable as they enjoyed the decent nickel discounts applied. But entering the second quarter, mills have been claiming that the market is offering no clear advantage to buy stainless scrap when compared to other raw materials such as nickel pig iron and ferro-nickel. Hence, their orders for scrap have been very limited as they try to force down prices paid to processors.

Stainless scrap demand in China is much weaker owing to COVID-19. In Indonesia, however, the nickel ore export ban is still in force and so mills are biting into the stainless scrap market within China to make up for the lost nickel units. But given the weakness of demand, the end result is a standstill all round. 

Japan’s stainless demand was stable for two consecutive quarters up to March. In April, once the country had announced stay-at-home regulations similar to those seen in other parts of the world, demand retreated sharply. However, supply of stainless scrap also dwindled with everyone at home.

On the Indian sub-continent, a lockdown has been in place for over a month and thus business has come to a virtual standstill. Stainless mills are mostly shut as migrant workers have all returned to their native smaller towns and villages within India. Many contractual obligations on both the buyers’ and sellers’ side may not be satisfied in full.

All of India’s major ports are overflowing with containers because of the shutdown; mills are unable to clear the cargoes because banks and government offices are closed. Furthermore, the bulk of materials are still to be shipped from suppliers as the mills have not been able to open the necessary Letters of Credit or to complete the paperwork to enable the cargoes to be shipped. There is also much uncertainty over port holding costs for the containers; the Indian government has mentioned a demurrage/detention cost waiver but several shipping lines are still forcing recipients to pay all of the charges to remove containers. Thus, a significant mess is building.

For the last month or so, mills have been shut and so domestic/export orders for finished stainless products have been completed only in part. On the purchase side, mills have not booked any raw materials owing to the almost total shutdown; not many of them wanted to risk booking scrap ahead of the looming uncertainty.

There is a fair chance that scrap shortages may be felt very soon after lockdowns are lifted and business returns to normal. Given the weak global demand for finished products, however, demand for scrap may remain poor for the coming two to three months before a significant shift becomes visible.

By May, the market will hopefully return to greater calm and something more like normal.