Some of the largest stainless steel recycling companies are based in Europe, which has been the home of an unwelcome percentage of the world’s geopolitical turmoil this year. That could be why industry players there have made moves to prepare for an uncertain market in the near future.
The factors causing concern in Europe are clear to see: 1) Russia’s invasion of Ukraine, which has reduced Ukraine’s capacity to produce metal; 2) sanctions against Russia, which have made metals produced there unwelcome in some parts of the world, coupled with Russia cutting off European steel producers from some energy supplies; 3) nickel contract trading turmoil on the London Metal Exchange (LME) in the first quarter of this year; and 4) global electric vehicle (EV) sales momentum that seemingly will place a supply strain on nickel because of its use in EV batteries.
Nonetheless, when a panel of speakers at the Institute of Scrap Recycling Industries (ISRI) convened for the Nickel/ Stainless Roundtable discussion in Chicago in September, they observed the global supply and demand situation for nickel seemingly had weathered the multiple storms this year.
Contingency planning
Recycling and trading companies well understand the cyclical nature of their business, so retaining access to cash on hand and a healthy balance sheet always are on the agenda.
The second half of this year has seen this illustrated in announcements by several prominent stainless and specialty alloy recycling companies. In early October, Cronimet Holding GmbH, a Germany-based processing and trading company, announced it extended an existing syndicated loan agreement through 2025 with a consortium of 13 European banks.
“The early extension and the increase in the credit volume are a strong sign from the banking market and give us financing security for the upcoming years, which are likely to be rather difficult in view of the current geopolitical and economic environment,” Cronimet Chief Financial Officer Bernhard Kunsmann said.
The Cronimet agreement included an increase of the loan volume by more than 100 million euros ($98 million) to about 700 million euros ($686 million), according to the company, which also said the package includes a credit line that allows it to respond more flexibly to the market environment, particularly to raw materials markets.
About six weeks prior, Oryx Stainless Group announced it had “increased its financial flexibility” by establishing a syndicated credit facility in the amount of 125 million euros ($127 million). In its comments, the company stressed opportunity more than threats.
Oryx, which is based in Germany, says the new credit arrangement replaced an existing credit facility at an early stage, adding that the move was made “against a background of higher raw material prices and delivery volumes.”
In the announcement, made jointly by Oryx and HSBC Deutschland, the metals trading company says, “This refinance guarantees sufficient liquidity for further growth planning.” Oryx says the credit agreement serves mainly to finance the working capital of the European Group companies and to provide collateral in connection with its commodity hedging business. The company adds that the arrangement “is parallel to a credit agreement in Thailand for the Asian business of the group.”
The transaction was agreed to with “a longstanding unchanged consortium of six banks and runs for a period of three years, with an option to extend for a further year.”
These moves by Oryx and Cronimet point to the notion that producers, users and traders of stainless steel and other nickel products are concerned about volatility and risk. Perhaps surprisingly, the ISRI Roundtable panelists commented on a sense of normalcy beneath the headlines.
Surplus, not scarcity
Metals industry analyst Edward Meir of the Connecticut-based Commodity Research Group told attendees what had seemed like justifiable fears of nickel and stainless steel shortages following Russia’s invasion of Ukraine had not manifested in a widespread way in the first three quarters of the year.
“We thought that with the Russian invasion, all of these LME metals would be in severe deficit, because we thought the sanctions would hurt the flow of these metals, whether nickel or aluminum or steel—or oil,” Meir said, looking back to March. “That didn’t happen at all; the Russians managed to continue exporting.”
Sanctions championed by the U.S. might have changed how metals such as stainless steel alloys (or raw materials such as nickel concentrate) flowed across borders, however, net production or trading seems to have kept global supply relatively steady. “Yes, there were sanctions on the banks and on the shipping, but their metals still got through,” Meir said of Russian companies.
“In the case of nickel, Russian exports [are] about 200,000 tons a year,” he continued. “And I thought at the time of the invasion that this 200,000—even if half of it does not come to the market, it would really tighten the nickel market. But that hasn’t happened. Most of the Russian nickel continues to come out, [and] the Nickel Study Group is expecting a 100,000 metric ton surplus [for 2022].”
One of Meir’s fellow panelists at the ISRI event in Chicago was Paul White of the Lisbon-based International Nickel Study Group (INSG), who provided the surplus figure. When the INSG met in April, White said, “The view was that the market was going to move into a surplus situation after having been in a sizable deficit last year. And the reason for this is mainly a very strong production growth that will exceed growth in usage.”
Much of that nickel production growth is in Indonesia, a nation removed from and largely unaffected by the war in Ukraine. While the INSG April prediction was for surplus of “around 66,000 tons” this year, as Meir referred to, White said 100,000 tons now seem plausible as an annual figure.
Indonesia is not the only Southeast Asian nation mining abundant amounts of nickel ore and making nickel pig iron to feed global markets. White said the INSG is forecasting “a strong rise of 24 percent this year” in nickel mine production. “Indonesia will consolidate its position as the main producing country, with the Philippines being second,” he said. “Those two countries account for about 60 percent of world nickel mine production.”
The additional output is helping sate the global EV battery appetite for nickel sulfate, White said, adding that existing or planned nickel sulfate facilities in Finland, Greece and France are among those linking mined nickel with sulfate that can be used in EV batteries.
Also contributing to the nickel surplus is a drastic decline—up to 40 percent—in global stainless steel production this year, according to data from the International Stainless Steel Forum, Brussels. The trend of declining stainless steel production likely has stainless alloy recyclers preparing for an uncertain 2023.
Geography of the downturn
When it comes to the stainless steel production and demand trough, recyclers and traders in North America and Europe will be watching closely to see how demand and production in their regions compare with conditions in China and Russia, countries with metals industries that increasingly are isolated from those in the West.
Meir said the downturn in China’s apartment tower construction sector—estimated to account for 25 percent or more of its gross domestic product—is a major factor. “A huge amount of metal consumption has been sidelined because China’s property market is basically flat on its back,” he said.
Dave Bestwick of Canada-based Dominion Nickel Alloys said a decline in demand for stainless alloy scrap had begun to manifest itself in North America in September. “There’s a lack of demand” from stainless scrap consumers in North America,” he said. “I wonder if that’s real demand—that a recession is coming—[or if it’s mills] trying to get their inventories back in check.”
With China’s economy wobbling and Russian metal moving from point to point to avoid sanctions, recyclers and traders could pay more attention to U.S. Census Bureau stainless alloy import/export statistics aggregated by the Specialty Steel Industry of North America (SSINA), based in Washington.
In the first seven months of the year, SSINA says 13.3 percent more finished and semifinished nickel alloy materials entered the U.S from other countries. Considering a global market that is shrinking, the North American sector likely is watching to see whether that year-to-date volume of about 72,700 tons of imported material rises quickly.
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