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Home > MEPS Steel News - 03.06.2013


LME nickel stocks, in late May, stood at an all-time high of almost 180,000 tonnes. This is 26 percent above the total of 142,000 tonnes at the beginning of this year. Furthermore, it is double the figure recorded at the beginning of 2012. With stainless steel consumption remaining subdued and more nickel production facilities coming on stream, it seems inevitable that the nickel surplus will continue to grow in the short term. The International Nickel Study Group recently forecast an excess of nickel supply over demand of 93,800 tonnes in 2013.

However, a moderate economic recovery is underway in the United States and continued growth is expected in China and other emerging nations. MEPS forecasts an increase in crude stainless steel production in 2013 of 3.8 percent, year-on-year, to a new record high of 36.7 million tonnes. Even quite a moderate upturn in demand can trigger bullish mechanisms in the commodities markets. The availability of nickel units, costing less than the full LME value, such as stainless steel scrap, can lag behind any increase in consumption of the metal. This can cause buyers to draw on LME stocks and, in turn, put upward pressure on prices.

Increases in nickel values have, in recent years, been the signal to expand production of Nickel Pig Iron (NPI), in China. However, Indonesia, one of the two main sources of the laterite ores used to produce NPI, has announced a ban on exports of these materials, from the beginning of 2014. It is not absolutely clear whether the ban will be fully enforced or whether, for example, it could result in increased export duties. It seems likely, though, that this will lead to either restricted production or higher costs for NPI in China. Stockpiled ores are thought to be sufficient for around six months' NPI production and processors are expected to add to these reserves in advance of the ban. However, the implication is that there will be greater demand on primary nickel sources, placing further inflationary pressure on prices.

Even a relatively modest swing in the supply/demand balance could precipitate a degree of volatility in nickel values that has not been seen in recent years, following the Global Financial Crisis. With this in mind, it is interesting to note that the leading European stainless steel producer, Outokumpu, has recently announced plans to run a pilot scheme, with selected customers, of a Daily Alloy Surcharge mechanism. No details have been given as to exactly how the surcharge will work, but the company suggests it will "decrease volatility and speculation and thus provide better delivery reliability for customers."

The Spanish mill, Acerinox, has responded by immediately suspending its monthly surcharge. It is inevitable that, when Outokumpu goes live with its daily surcharge, the other European steelmakers will follow suit. Whatever these mechanisms offer the customers, it is certain that they will protect the producers of stainless steel against violent movements in commodity prices.

Source: MEPS -
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