Quarterly Report – July 2020

The last three months have been extraordinary. The April nickel price was range-bound around US$ 12,500 per tonne, with an upper limit of US$ 13,200, until a break above US$ 13,500 on July 11. Nickel demand for the stainless steel market is expected to suffer a small contraction this year for the first time in a decade, while demand for the metal from the electric vehicle sector will be the same as last year.

In the second quarter of 2020, there was stable demand for scrap from Taiwanese and South Korean mills. Mills are still enjoying decent nickel discounts applied for scrap. Entering a third quarter which normally signals the summertime blues for stainless mills and for demand, production levels were already curtailed and, overall, demand is the same as in the second quarter but better than in the third quarter of last year. According to customs statistics, Indonesian hot coils and products are taking an approximately 33% share of the Taiwanese stainless coils market.

China brushed off expectations of weak stainless scrap demand resulting from COVID-19 as the virus has been controlled reasonably well and orders for raw materials started to recover from May onwards. Indonesia’s nickel ore export ban is still in force and so mills are eating into stainless scrap supplies.

Japan’s stainless demand was weak in the second quarter of 2020 as the country mirrored the stay-at-home regulations seen in other parts of the world. Generation of stainless scrap has also been affected. Mills started to come back online in June and demand in the Japanese market now seems to be on a much more stable footing than in the second quarter.

India has been badly hit by COVID-19 and has suffered extended periods of lockdown in several major cities, thereby deeply affecting the economy. Furthermore, factories rely heavily on migrant workers who returned to their villages in response to the COVID-19 outbreak in India’s major cities. Stainless mills are trying to resume production but face acute labour shortages as well as a second round of lockdowns.

There is tightness in the scrap market as generation is very low. Therefore, scrap prices are high compared to LME nickel, thus reducing mills’ margins dramatically. The use of ferro-nickel and other substitutes continues to grow in India to cope with the scrap shortage.

Although stainless mills would like to return to pre-COVID production levels, demand remains uncertain owing to the gloomy economic situation worldwide. According to many market reports and surveys, conditions will improve only in the final quarter of 2020 and the first quarter of 2021. Demand is very poor for 200 and 400 series stainless and plants specializing in these are struggling to win orders.

Companies supplying scrap to Indian mills are also facing a problem with obtaining credit insurance for those consumers because insurers do not want to take the risk. This adds to the supplier’s risk of shipping scrap to India.