Economy in China is stop and go. Lockdowns are followed by stimuli. This does not leave the global economy unimpressed. Inflation, interest rate increases, weak orders coming in. Challenges are in abundance.

Availability of scrap is suffering from logistical limitations. Low river levels and priority by the railways for oil and gas. Also, the price elasticity of scrap supply should not be forgotten.

Metals determine the value of scrap, not just the cost of processing. Survey sees LME nickel in 2022 with an average price of USD 25,300/mt. 2023 at USD 21,000/mt because of a bigger supply surplus.

worldstainless: Global stainless steel production in the 1st quarter 2022 plus 1.7% as opposed to the 4th quarter of 2021. Oliver Wyman is also examining the LME nickel market. Stainless steel from scrap becomes product line. New tariffs in Indonesia.

China has to abandon zero covid
While in China, lockdowns and draconian measures prevail, here in the European summer restaurants are full and markedly more expensive. And it would appear in all countries, with the exception of Germany, that it is now accepted that the corona virus, in the meantime, has become endemic. Should this strain not once more mutate to a more dangerous variant, then restrictions such as those imposed in previous years should not be expected this autumn and winter. It would not be bad for the Chinese leadership to also think along these lines, as with a zero covid strategy the Chinese economy is forced into a continuous stop and go situation. This also creates considerable economic and other collateral damage which goes far beyond the Chinese borders.

China is not only a major consumer of export goods, but also an important link in the supply chains of crucial components, and by far not just for IT. This situation coupled with inflation and rising interest rates and the continuing undiminished war in the Ukraine, means that the order books of industry – presumably with the exception of the arms industry – are not filled to the same extent as outdoor restaurants in summer temperatures.

Scrap availability is sinking like the water level of the Rhine
The scrap market has once more (temporarily) turned into a buyer’s market, but not just on a seasonal basis but also because of a macro-economic framework. It is not just the bed of the important European river Rhine which is drying out this summer, but also the availability of stainless steel scrap is drying up. For even if some market participants argue otherwise, there is still a direct connection between scrap volume and the scrap price in respect to nickel prices on the London Metal Exchange (LME).

For the various nickel products (on and off Exchange) there have always been discounts and premiums based on the LME nickel price, depending on the respective supply and concrete demand. Europe is, moreover, not an island, even if stainless steel producers, despite record profits, would like to use their bargaining power at the moment to exert considerable pressure on the margins of scrap traders.

An equally popular argument, and often discussed here, is the theory of splitting the nickel market into two segments, one of exchange grade qualities and the other of non-exchange grade qualities, whereby the only use for the latter is said to be in stainless steel production. Therefore the pricing of scrap must fundamentally derive from actual production and processing costs. Since these should, presumably, be low for scrap, then scrap must also be a “cheap” commodity. Scrap would have then the greatest potential for price reduction according to the opportunistic derivation.

Division of the market is wishful thinking
This idea, which at first glance may sound good in some ears, does not recognise that, different to a normal product, scrap is also a scarce recycling commodity, the value of which is mainly determined by the metal components it contains. Scrap metal is not worthless, but valuable, even in households and companies. This is because the chemical-metallurgical elements it contains, such as nickel, chrome, molybdenum and iron, can be recycled without loss in quality and with considerable positive effects on the climate (in comparison to mined and refined raw materials). In this respect the value of scrap must be derived from the prices of the alloy elements.

It is, therefore, no surprise that in international and national trade an independent reference price, such as that of the LME, is very sensible and useful for the practical handling of transactions, leaving aside the one-off dysfunction of the LME in March 2022. If prices would be, however, derived along a burden capacity model, as claimed, we would no longer be in a free market economy, but rather in fiscal concepts with the “social” goal of redistributing margins.

If comparable goods are taken, which are just as scarce, such as old gold or used diamonds and precious stones, these are also not just given away, because gold and diamonds logically remain value commodities, even in a used condition. Therefore, sales and supply cannot really be increased by lowering prices, even with the most sophisticated argumentation.

A comparison with the prices of the respective complementary raw materials is more permissible and understandable, but in times of emissions trading and carbon border adjustment mechanisms, these must also have the corresponding properties in terms of climate compatibility and must also be available in fact and in practice. The price of raw materials containing nickel will always be determined by the price of the last ton of nickel traded on a functioning LME.

Stronger dollar dampens commodity prices
Since the last edition in the middle of June, the price of the nickel future on the LME has initially fallen from USD 25,000.00/mt to a low of just over USD 18,000.00/mt by the middle of July. The aspects already mentioned above were just as responsible as also the firmer dollar, caused by a significantly increased uncertainty in the markets. Commodities of all types quoted in US-dollars became more expensive when priced in the domestic currency, accordingly dampening demand. Since then the nickel price has recovered quite significantly and after a constant rise to a level of USD 25,000.00/mt once more, has now been trading for a while in a range between USD 22,000.00/mt and USD 24,000.00/mt, depending on the daily news bulletins. Demand, availability and prices have been low for nickel containing stainless steel scrap.

Reuters survey in conflict between uncertainty and stimulus
The traditional survey of the economic news and price data provider Reuters taken amongst commodity analysts of leading banks and broker houses was influenced by the greatly increased general uncertainty and also by weaker Chinese economic data. The quick Chinese response with necessary infrastructure measures did have a positive effect, along with further stimuli for one of the biggest global buyers and consumers of raw materials. The analysts surveyed expect an average cash price of USD 22,000.00/mt, which approximately corresponds to present price levels. This would result in an average price of USD 25,314.00/mt for the whole of 2022.

For the following year, 2023, market observers expect an average of only USD 21,000.00/mt; in 2021 the average had still been USD 18,476.00/mt. The reason for the decrease is the anticipated increase in the supply surplus of primary nickel, from 23,000 tons in 2022 to an estimated average of 50,500 tons in 2023. Yet, as already described above, this picture can quickly change again, depending on the respective availability of stainless steel scrap and other raw materials or an improvement in demand and order books.

worldstainless announces production for the 1st quarter 2022
After 26 years the International Stainless Steel Forum (ISSF) becomes worldstainless. In doing so, worldstainless, as a dependent unit, is independent in terms of content, management and budget of the World Steel Association, but does receive its administrative support. The main tasks remain unaffected by the name change. As its General Secretary Tim Collins said in a press release, the relaunch has lent a great deal of importance in providing an even stronger profile to the idea of the circular industry and the sustainability of the product stainless steel.

Thus in the second half of June, the figures for stainless steel smelting production were released again. In the 1st quarter of 2022 a total of 14.45 million tons were produced, which is around 1.7% more than in the last quarter of 2021. Compared to the 1st quarter of the previous year, however, there is a minus of 3.8%, whereby China and the USA were developing especially weaker in particular, with declines of minus 8.0% and minus 8.8% respectively. A decline in Europe of 2.5% as opposed to the previous year’s quarter can still be described as moderate, although in comparison with the 4th quarter of 2021 European output could actually increase by 5.2%. The figures make it clear that economies do not run parallel in the various regions which, on a global level, provides a certain compensating balance in development.

LME commissions Oliver Wyman to study the nickel market
The London Metal Exchange has commissioned the renowned consultancy Oliver Wyman to make an independent study of the events in nickel trading in March 2022. The trading place, steeped in tradition, suspended nickel trading for several days in the early hours of the morning on the 8th March 2022 as the prices which were being called out were threatening to destabilise the financial market. The trade stop was only the second time in the history of the 145 year old commodity exchange that trade in one of its metals had to be suspended.

In its study the consultancy company Oliver Wyman will not only take a look at the policies, processes and data of the LME, but will also analyse the trading data from OTC (over the counter) business with third parties. Central to the action of the short squeeze was a large short position of a Chinese company which held its positions mainly as OTC positions with banks, which, according to information so far gathered, were not visible to the LME and its clearing house. Since July 2022, there is an additional obligation to report such OTC positions to the LME in order to close this loophole.

In its press release, the LME has written that the investigation by Oliver Wyman is expected to last until the end of the year. In the long term the results should improve the resilience of the LME nickel market. Oliver Wyman has been commissioned at the same time as the British Bank of England Financial Conduct Authority is also investigating the same events. The LME is currently being sued by investors for several hundred million Pounds Sterling for loss of earnings on account of cancellations of LME transactions in connection to the market distortions of March 2022.

EU has to reduce dependence on raw materials
According to participants of the EIT RawMaterials Summit in Berlin which took place some weeks ago, the European Union is seeking autonomy in critical minerals and metals in order to meet the high demand associated with energy transition. During the summit Maroš Šefčovič, Vice President of the European Commission, pointed to the shortages from 2030 onwards and even gave the warning that without a sufficient raw material supply there can be no Green Deal. Šefčovič announced that in order to reduce Europe’s dependence on third countries, the community of states must strengthen its procurement of raw material supplies, enter into strategic partnerships and expand recycling.

The head of the department for critical materials in the French government, and former CEO from PSA Peugeot, Philippe Varin, demanded that a maximum of 25 percent of the total supply of one material should be allowed from one region alone. Currently 95% of rare earths are sourced from China. A member of the industrial association, Eurometaux made the forecast that only from the year 2050 65% to 75% of raw material demand can be covered by recycling.

Stainless steel in the Circle Green Core product line is made of 98% sustainable scrap
The Finnish stainless steel manufacturer Outokumpu has introduced a product line Circle Green Core, which has a 92% lower carbon footprint than the world wide average in stainless steel production. According to the manufacturer, improvements were made along the whole length of the production chain which has led to a lowering of emissions. The biggest contribution in saving of emissions came from the amount of scrap used, which in the new product line is at 98%. According to a spokesperson of Outokumpu in response to a question by the news portal Recycling Today, the substitution of primary raw materials through the use of stainless steel scrap is the most important contribution for the environment.

The three largest European stainless steel manufacturers, Acerinox, Aperam and Outokumpu in their sustainability reports all state that their scrap usage quotas are already exceeding 90%.

Indonesia plans new tariffs in the nickel sector
Indonesia, the biggest and fastest growing producer of nickel worldwide forbade the export of unrefined nickel ore in 2020 in order to increase the domestic downstream value creation. With this measure, President Joko Widodo wanted above all to expand investments in his country, increase tax revenues and create work places. Since then, nickel ore in Indonesia has been processed to nickel pig iron and only then exported mainly to China. There it has been used as an important material in stainless steel production. This newsletter has reported regularly on the actual developments in this fourth largest country in the world according to population.

Now the Indonesian government is considering making the export of Indonesian raw materials in the processed form more difficult, since nickel pig iron still gives too little return in the domestic value creation. A government spokesperson told the news portal Reuters that finished stainless steel or at least nickel sulphate should be exported. As a consequence, Indonesian companies are now considering focusing on processing nickel ore into nickel containing intermediate products for battery production. The columnist Andy Home, in an article in the news portal Reuters, warns that the Indonesian government could thereby increase the supply for battery production and contribute to a raw material shortage in the stainless steel sector.

LME (London Metal Exchange)

LME Official Close (3 month)
August 18, 2022
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
LME stocks in mt
  June 17, 2022 August 18, 2022 Delta in mt Delta in %
Nickel (Ni) 68,868 56,010 – 12,858 – 18.67
Copper (Cu) 118,025 126,475 + 8,450 + 7.16
Aluminium (Al) 407,875 274,525 – 133,350 – 32.69

Oryx Commodity News

Oryx Commodity News informs about current, industry-relevant topics.