Stainless Steel MMI: Supplier Inventories High & Nickel Starts Rally

The Stainless Monthly Metals Index (MMI) moved sideways with a modest 1.41% decline from October to November. All in all, the stainless steel price movement primarily reacted to volatility in nickel trading.

Nickel held historically low volume levels over recent months, while nickel prices remained within their short-term range. By November, however, prices began to see upside price action with a sharp rally. The question is whether this is a true reversal or mere volatility. To qualify as the former, prices would need to sustain bullish market sentiment long enough to create a pattern of higher highs.

At this point, breakdowns in price remain a distinct possibility. This could lead to a bearish continuation or a return to sideways movement. Either way, it will continue to pose a high risk to buyers until the market decides on a clear direction.

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High Supply Inventories Pressuring Spot Stainless Steel Price

Service centers, brokers, and master distributors remain flush with inventory. Many continue to take aggressive measures to move material. Service centers also indicated that October shipments were relatively flat compared to September. As a result, many have over four months of stainless inventory. This means that transactional spot prices – especially in 304 – will continue to be under pressure as we close 2022. Most suppliers hope to make their inventories as lean as possible by December 31. Doing so would aid with year-end financial reporting and, in some states, avoid potential inventory tax liabilities.

Stainless flat-rolled buyers have immediate opportunities for favorable spot pricing. Indeed, transactional prices are lower than in October due to the decline in the alloy surcharge. For instance, the November 304 alloy surcharge declined $0.1133 / lb to $1.1117 / lb. This was due mainly to dips in ferrochrome, energy, and ferrosilicon prices. Meanwhile, the inventory overhang continues to put more downward pressure on the 304 spot price.

Meanwhile, spot market prices are truly running the gamut this month. MetalMiner’s Should-Cost Model indicates that 304 2B base gauge sheets should sell at around $2.11/ lb. However, actual spot pricing has ranged as low as $1.80 / lb. and as high as $2.50 / lb. This is mainly because spot pricing reflects how desperate the supplier is to rid themselves of excess inventories.

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Significant Declines in Flat Rolled Imports

Flat-rolled stainless imports into the U.S. declined significantly in October. Furthermore, import licenses declined by over 20,000 MT from October to September. Meanwhile, service centers, brokers and master distributors have all pulled back from buying stainless imports. In fact, both NAS and Outokumpu are now booking orders for January. NAS even recently announced that ferritics, BA (bright annealed), tempered and polished materials would be on allocation. This is a further indication that domestic mills will most likely not reduce base prices in 2023.

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Indonesia Nickel Ore Export Ban: Deadline for Final WTO Report Approaches

It’s been three years since the EU’s initial complaint. However, the deadline for the World Trade Organization’s final report has nearly arrived. The WTO will weigh in on a trade dispute triggered by Indonesia’s ban on nickel ore exports. The ban went into effect in 2020, and the WTO’s report should arrive sometime during Q4 this year, indicating whether the EU’s complaint is justified. If it is, the WTO will likely recommend changes.

In the complaint, the EU stated that the ban unfairly restricted its access to vital raw materials. Primarily, the ban limits the ability of stainless steel producers to access nickel. Indonesia accounts for around 38% of global nickel production, giving the nation significant market clout. MetalMiner previously commented on the ban’s impact on nickel prices.

Indonesia Reaping Benefits of The Ban

Indonesia’s decision to implement the ban aimed to attract new investments. The country sought these funds to develop and expand its nickel smelting facilities and downstream industries like stainless steel mills. Investing in value-adds has allowed Indonesia to become the world’s second-largest stainless steel producer. Back in August, Indonesia announced additional plans to tax exports of nickel pig iron (NPI) and ferronickel as part of the same strategy. 

Such policies have caused a more than 20-fold increase in the country’s export revenues over seven years. With the stainless steel price where it is, there’s no doubting the opportunity. However, President Joko Widodo does not expect the WTO to rule in Indonesia’s favor. According to statements made at an economics forum in early September, Widodo would remain undeterred if the EU won the dispute. He has even reiterated plans to halt raw copper, bauxite, and tin exports. However, no implementation date has yet been announced.

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Will the Nickel Price Rally Last?

A looming decision by the LME as to whether or not it would ban or restrict metal from Russia helped boost the early-month bullishness for nickel prices. The same was also true of copper and aluminum. The markets seemed to expect some form of restriction. However, on November 11, the LME chose not to impose any sanctions against Russian material. The exchange noted, “while there is evidently an ethical dimension as to the global acceptability of Russian metal, we believe the LME should not seek to take or impose any moral judgments on the broader market.”

This move will likely take at least some wind out of the bulls’ sails, although how much remains to be seen. Meanwhile, any additional rumors that China will retire its zero-COVID approach could provide a strong counterweight and support the nickel and stainless steel price rally. So far, recent policy tweaks like shorter quarantine times and cuts to testing in several cities have added significant support.

Indonesia Could Come Out on Top

The impact of Indonesia’s existing and future export bans will remain up in the air until the WTO releases its findings. However, Indonesia’s newfound leadership in the stainless sector will undoubtedly incentivize the continued use of this strategy. Much like in the past, this will add further support to nickel prices and make market dynamics in Indonesia a more impactful driver for global stainless steel prices. If Widodo’s suspicions are correct and the WTO sides with the LME, it could halt the rally and tip prices to the downside. Still, even if the ban ends, the past three years proved a big win for the archipelago. In fact, it’s likely Indonesia will merely pivot with effective but legal workarounds that still add some support to nickel prices.

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Tsingshan Wants to Add Short Positions to Nickel

While the fate of the nickel price rally remains unclear, some are making bets on the downside. For instance, Tsingshan Holding Group is reportedly seeking to increase its short positions on nickel. The company and its founder, Xiang Guangda, have a long history of trading nickel. Indeed, many commodity investors will remember the historic short that broke the LME nickel contract. As the stainless steel price index remains quite fragile, such a move could create more chaos.

According to an October 24 Bloomberg report, the most recent plan is to hedge against value fluctuation for the company’s nickel output. If Tsingshan can successfully convince brokers to move forward with the positions, they would sit far beneath the precipitous 150,000-ton position it held back in March. Still, brokers have been reluctant to trade with the company, and some have severed ties entirely. 

Tsingshan Risks Nickel and Stainless Steel Price Futures

Beyond the controversy of Tsingshan returning to the game, this story is interesting in a few regards. 

For one, Tsingshan is the largest stainless steel producer, with heavy investments in the nickel industry, including in Indonesia. Therefore, any position the company takes comes with deep insider knowledge of the market. 

Of course, amid low liquidity within the nickel contract, any big bets will have a significant impact. It remains uncertain, however, exactly how big Tsingshan’s positions would be and whether they could prove a tipping point for nickel or stainless steel price direction.   

Nickel Battles Lost Trust in The LME

Lastly, as a formerly major trader, a return of Tsingshan could mean the return of at least some of the lost trading volumes. That said, it won’t shift the more widespread exodus from nickel trading. The LME’s reputation, after all, remains severely damaged, and a return of the instigator behind the historic short could foster even less trust. Still, if volumes do meaningfully increase, it could help smooth some of the volatility that has plagued the nickel contract since March. 

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Biggest Nickel and Stainless Steel Price Moves

• Indian primary nickel prices saw the largest month-over-month increase, with a 7.22% rise to $23.96 per kilogram as of November 1.
• Chinese ferromolybdenum lump prices increased by 5.19% to $29,121 per metric ton.
• Chinese primary nickel prices rose 2.85% to $26,564 per metric ton.
• Meanwhile, the Allegheny Ludlum Surcharge for 316/316L coil fell 3.63% to $1.73 per pound.
• Finally, Allegheny Ludlum Surcharge for 304/304L coil saw the largest month-over-month decline of the index, with a 10.2% drop to $1.18 per pound.