Cloudy forecast for stainless scrap

Producers of stainless steel have enjoyed a good market throughout most of this decade, and 2018 has proven to be no exception. In the first half of 2018, stainless steel melt shop production increased by 13.3 percent compared to the first half of 2017, rising to 26.1 million metric tons.

That figure, from the Brussels-based International Stainless Steel Forum (ISSF), when broken down into regions shows China as being responsible for more than half of the world’s stainless steel production in the first half of 2018. Production in Europe and the United States combined now accounts for just 20.6 percent of global production.

That imbalance comes into play for scrap recyclers because the stainless scrap market has become increasingly polarized, with stainless scrap having stayed closer to home than copper or aluminum scrap well before the Chinese government began putting scrap import bans into place.

No urgency to trade

When stainless steel recyclers gathered in Barcelona in May at the Bureau of International Recycling (BIR) Stainless Steel & Special Alloys Committee meeting, the triangulation of the Asian, European and North American stainless scrap markets was a topic of discussion.

As many of the same traders who had met in Barcelona gathered in early October in London for the BIR’s Autumn event, committee member Omar Al Sharif of United Arab Emirates-based Sharif Metals remarked, “Concerns about the trade war between the U.S. and China, along with falling raw material prices for stainless steel, have been recurring themes.”

Veteran United States-based scrap trader Barry Hunter of Hunter Alloys LLC, who moderated a panel discussion at the Barcelona meeting, told Recycling Today in a follow-up interview in June that scrap traders in many parts of the world were lacking a competitive global market in which to sell.

The most commonly cited culprit is the reliance of booming Chinese stainless mills on regionally sourced nickel pig iron, rather than scrap brought in from overseas. Hunter also pointed to consolidation of mill capacity in the rest of the world, and those producers’ reliance on blended scrap shipments. The use of the blends, said Hunter, has minimized the important sorting and segregating steps formerly undertaken by small- and medium-sized recycling firms.

The set of circumstances has led to narrow margins in the stainless steel recycling sector despite the heightened global demand for new stainless steel, according to Hunter.

Another weather system to worry about

As many of the same traders who had met in Barcelona gathered in early October in London for the BIR’s Autumn event, more protectionism had set in globally in the wider metals and scrap markets, and the future direction of overall stainless production levels also was brought into question.

Guest speaker Jim Lennon, a senior commodities consultant at United Kingdom-based Macquarie Capital (Europe) Ltd., pointed to a global stainless output trend far different from the melt shop figure calculated by the ISSF.

According to Lennon, world output of stainless steel grew by 7.6 percent in 2016 and by 6.7 percent in 2017, but he said “a turning point” may have been reached in 2018 as he expects that growth rate to slow to perhaps 3.4 percent this year and 2.6 percent in 2019. Lennon added that the current “protectionist phase” in the stainless steel market is making his forecast more difficult, however.

Demand for nickel in battery applications could keep stainless steel pricing strong even if demand for the iron-nickel-chromium alloyed metal declines. Nickel pricing often rises in tandem with global stainless steel production, but nickel’s use in batteries (in such applications as electric vehicles) is growing at a 30-to-40 percent clip annually, albeit from a low base.

Lennon described nickel price volatility as “pretty intense,” adding, “I don’t see that changing any time soon.” He projected the London Metal Exchange (LME) cash price (which was at about $12,290 per metric ton on Oct. 25) would average around $16,000 per metric ton in 2019.

Nickel, said Lennon, is in structural deficit but overall inventories remain as of early October, delegates were told. The latest figures from the Lisbon-based International Nickel Study Group suggest global consumption of the metal will surpass output in 2019.

Output is by no means diminishing, especially in Indonesia, which Lennon referred to as an emerging player in the nickel and stainless steel markets. The country could be supplying as much as 25 percent of the world’s mined nickel supply in 2018, and thanks to investments by a Chinese steelmaker, the nation also is becoming what Lennon called “a very large contributor” to stainless steel production.

Indonesian stainless steel capacity installed by China-based Tsingshan has added some 2 million metric tons of annual stainless melt capacity in Indonesia in the previous 12 months, with a further 1 million tons of output projected for the second half of 2018. More than 80 percent of Tsingshan’s Indonesian exports had been going to China, but Taiwan could now be the leading importer, according to Lennon.

Even with Indonesia’s ready access to ores to make nickel pig iron, Lennon’s forecast calls for nickel-bearing scrap to enjoy demand growth in 2019. He says the nickel in scrap component stood at 904,000 metric tons globally in 2017. That figure is expected to rise to 945,000 metric tons in 2018 and 983,000 metric tons in 2019.

The author is a senior editor with the Recycling Today Media Group. Parts of this article are drawn from a press release issued by the Bureau of International Recycling (BIR).