Nickel/Stainless Market Flattens

Nickel, and its primary mover, stainless steel, have been meandering along in pricing since the end of last year. In April of this year, the London Metals Exchange price for nickel was at $3.75 a pound. At the beginning of last year, the price had shot up to $4.86 a pound, but fluctuated down to a year-low of $3.05 a pound in May 1995. After a couple more spurts up to the $4-a-pound level, nickel ended the year at $3.75 a pound; and for 1995, averaged $3.73 a pound.

As for 18/8 stainless scrap (18 percent chromium; 8 percent nickel), which is the benchmark grade, processors were selling the material for $0.54 a pound at the beginning of 1995; $0.45 a pound by the middle of the year; and around $0.40 a pound this April.

Although many scrap suppliers would like to see nickel topple the $4 mark again, and see stainless scrap prices head back up as well, few are complaining. Most remember the early 1990s when Russia began dumping nickel on the market. By the end of 1993 the LME cash price for nickel slid to $2.40 a pound from $4.02 in 1990. Then, according to Peter Kuck, nickel specialist with the U.S. Geological Survey, Reston, Va., the Russians wised up, and became more astute in the market. "Now, they have contracts," he says, "and there are no more fire sales."

Currently, LME stocks are heading back to post-1992 levels. Last year, LME nickel inventories plunged from a peak of 333 million pounds in late 1994, to less than 100 million pounds at the end of 1995. LME inventories continue to decrease and in April they were holding at around 75 million pounds.

Despite the supply drawdown, a slowdown in the market occurred in the second half of 1995, indicating that there would be excessive downstream inventories due to rising prices. All of a sudden, stainless steel scrap was in ample supply, and prices began to slide.

"We had about three-fourths of a banner year in 1995 in the stainless/nickel market," according to Mike Kleczka, vice president of steel sales for International Nickel Inc., Wexford, Pa. – a branch of Inco Ltd, Toronto. Kleczka spoke at the Institute of Scrap Recycling Industries’ annual convention in Orlando in April. "The market began to turn sour at the end of last year, and right now, we are in a valley and are waiting for the stainless steel destocking cycle to run its course."

Many in the industry feel that because stainless is a growth material, that continued demand will pull the commodity out of this pricing valley and back on a positive track.

On the other hand, Kleczka says there are those who feel that nickel and stainless have both reached their peaks due to a slowdown in capital spending and because industrial inventory pipelines are filled.

But, since the end of 1995, nickel and stainless steel scrap pricing have refused to budge. In fact, 18/8 scrap has gone down about 5 to 10 cents a pound, and some are attributing the soft pricing to weakening demand.

"Demand is down in stainless right now, and I think it is just because of a continued slackening in the overall economy," says Robert Kimmel, vice president of Kimmel Scrap Iron & Metal, Detroit.

Kimmel has a positive outlook on stainless and says that it will rebound in the latter half of the year.

It’s a buyers’ market right now in stainless, according to Maurice Berglund, nonferrous manager for Sadoff Iron & Metal Co., Fond du Lac, Wis. "The mills have not purchased as much scrap as we would like," he says. "Basically, the mills’ operating rates are down, and there is an oversupply in the market. Therefore, pricing has come down."

Ed Orensten, a broker for South Bend Scrap & Processing/Sturgis Iron & Metal Co., South Bend, Ind., is experiencing the same lagging market. "It’s the beginning of May, and stainless scrap is trading the lowest it has all year," he says. "The 400 series stainless scrap that was at $360 to $380 a ton is now at $240 to $260 a ton, and 18/8 scrap is about $820 a ton or about 41 cents a pound. The market is not as strong as many people expected, and it doesn’t look good in the near term."

Despite the current softness in the market, stainless steel applications continue to grow and that growth is sustainable, according to industry watchers. Last year, a record 16.2 million tons of stainless was shipped in the world (this excludes shipments from the Commonwealth of Independent States, China and Eastern European countries). This figure represents a 13 percent jump over the 1994 figure of 14.5 million tons, which was the previous record. Since 1950, stainless steel has averaged annual growth of about 6 percent per year, and projections for the next five years has stainless on an even steeper growth curve.

Kleczka expects 1996 world stainless steel consumption to remain at about 16.2 million tons. "We are basically looking at a balanced market for this year," he says.

As for the production increases that were achieved last year, Kleczka says a full one-third of the 1995 stainless production increase was attributable to advances in Taiwan, India, South Korea and South Africa.

Taiwan, in fact, has increased production so much with the building of new mills, that it normally has to wait in line for stainless scrap, according to Rover Mellon, an industrial consultant from London. Mellon also spoke at ISRI’s convention in April. Taiwan has the highest consumption of stainless steel at 63 pounds per person of any single country. But according to various brokers who export heavily, demand for stainless scrap in both Europe and Pacific Rim countries is not very strong right now.

The biggest producers of stainless steel – Western Europe, Japan and the U.S. – also have seen the biggest gains in production in the last few years. The largest producing region, Western Europe, has increased its stainless output by almost 1.5 million tons of liquid steel since 1993. Last year, Western Europe had a combined output of 6.5 million tons of stainless. Japanese output was 3.9 million tons of liquid steel last year due to rises in exports of stainless products to Pacific Rim countries. Japan has increased its output of stainless by more than 0.7 million tons since 1993, and by itself, it is the largest producer of stainless.

The U.S. is the third largest producer of stainless steel in the world with an output of just more than 2 million tons of liquid stainless in 1995. But U.S. stainless output has only increased by 0.25 million tons since 1993.

Events in the marketplace that may impact the future supply and demand of nickel and stainless include advances in nickel-cadmium batteries, and the ability to effectively recycle the nickel from those batteries; environmental restrictions on nickel electroplating operations; the discovery of new nickel deposits; the flow of nickel and stainless from Russia; constraints on Cuban nickel deliveries; continued growth of stainless in plumbing applications; and the ability of steel makers to reduce stainless processing costs.

The discovery of an extremely large nickel deposit at Voisey’s Bay in Labrador, Canada, last year could have dramatic effects on the market. The nickel deposit was found by a mining company that was searching for diamond deposits. Inco Ltd. has made a $3.5 billion offer for the deposit, which has a huge body of nickel very close to the surface. The deposit also contains cobalt and platinum. "Production from the deposit will depress scrap prices," says Kleczka, "but I don’t think the effect will be as dramatic as everyone is predicting. There will still be a strong market for stainless scrap."

Voisey’s Bay is expected to produce about 270 million pounds of nickel per year, according to Inco officials.

All eyes are also on Russia, and one broker says nickel pricing depends on how much will come out of Russia in the future. "Hopefully, there will be no more flooding of the market," he says.

The Russian nickel market is actually leveling off, according to Kleczka. "The country should produce about 200 million pounds of stainless this year, which is way down from levels in the 1980s. The main reason for the decrease in production is that Russia lost its biggest customer when the Soviet military went out of business."

The use of stainless for items such as sinks, plumbing and other fixtures will continue to grow.

Kuck also points to continued growth in the U.S. and to countries such as India and Brazil that are growing industrially and which currently have very low stainless steel usage rates. "When you look around the world, you find that stainless steel has plenty of room to grow," he says.

Gains with stainless in the auto market continue, but slowly. Most vehicles are already outfitted with stainless steel exhaust systems, so the growth there is not great, and some firms are experimenting with stainless steel gas tanks. Other than that, there will probably not be any major inroads of stainless into the auto market in the near term.

Restrictions on Cuban nickel continue in the U.S. Nickel importation to the U.S. is already banned, but now because of a new Presidential trade order, any foreign corporation found buying or selling Cuban nickel can be denied entry into the U.S.

Cuba has the largest reserve base of nickel-bearing laterites in the world. Three mining and smelting complexes are currently producing nickel on the island, and some of the nickel already is shipped to Canada for follow-on processing. Canadian and Mexican officials have asked the U.S. to exempt them from the Presidential order because of conflicts with the North American Free Trade Agreement.

Finally, the ability of stainless steel producers to make stainless more efficiently could make end products even more attractive. One company, Lukens Inc., Coatesville, Pa., recently commissioned its Steckel Mill Advanced Rolling Technology system which is the only system in North America that can make carbon, alloy and stainless steel products, according to the company.

"SMART reduces our production costs by about 25 percent over our old system," says Rick Whitmyre, director of communications for Lukens. "Being able to switch between carbon and stainless gives us an economy of scale and allows us to flex production."

Lukens has the capacity to produce 435,000 tons of stainless steel a year, but Whitmyre says the company is not producing at that capacity. The company would not release its annual stainless production, but it is known to buy between 8,000 to 10,000 tons of 18/8 stainless scrap a month.

Also, Nucor, Charlotte, N.C., has been producing stainless in the 400 series at a rate of 3,000 to 4,000 tons per month for the past several months, and is even working on running some other grades. The company expects to produce 6,000 to 7,000 tons of stainless in the fourth quarter of this year. Nucor has a long-term goal of producing 200,000 tons of stainless at its Crawfordsville, Ind., minimill. If that happens, it will be the second largest producer of stainless in the U.S.