Despite all of the conflicts and uncertainties gripping our world, a host of market forces – including global expansion of the middle class – has combined to create the conditions for healthy growth in stainless steel demand. For stainless steel scrap market participants, relatively positive global macro-economic indicators must be weighed against commodity price volatility and shifting supply/demand fundamentals.

Against this backdrop, the world’s stainless steel industry was yet again on course to post record production last year, following on from 5.8% growth to 48.1 million tonnes in 2017. According to the latest figures available from the International Stainless Steel Forum, melt shop production increased by a staggering 10% year on year to 39.1 million tonnes in the first three quarters of 2018, thanks in no small measure to huge growth from a relatively low level in Indonesia and to a further 8.5% hike in China’s output to reinforce its position as the world’s leading producer.

The continuing emergence of Indonesia as a major player on the world stage was perhaps the standout development in 2018. Its market-altering impact was discussed in detail at our meeting in London last October where Jim Lennon of Macquarie Capital (Europe) Ltd said Indonesia could well absorb around a quarter of global nickel supply in 2018 and had been a massive contributor to stainless steel production growth over the previous 12 months as a result of ongoing capacity extensions by China-based Tsingshan.

This company has established itself as the lowest-cost stainless steel producer by some distance, leading to fears that it might undermine the market as a whole by flooding it with cheap material. Encouragingly, many experts – including Mr Lennon – have indicated Tsingshan’s strategy could be more fundamental: to use lower prices to stimulate additional demand for stainless at the expense of, perhaps, carbon steel. Clearly this is not welcome news for our friends in the steel sector but, nevertheless, it will be interesting to see whether this scenario plays out to any significant extent in 2019 and beyond.

Despite this benign assessment of Tsingshan’s possible intentions, there is no denying that markets around the world have been ruffled by developments in Indonesia. At our meeting in Barcelona last May, guest speaker Olivier Masson of Roskill Information Services alerted our industry that newly-developed 300 series stainless steel production in Indonesia could severely alter material flows, potentially reopening markets in the EU and the USA that were no longer available to exports from China as a consequence of trade measures such as tariffs.

This was certainly a factor in the noticeable thinning of European producers’ order books after a strong start to 2018 in terms of both volumes and margins. Other parts of the world felt the same pressure as Indonesian production sought new outlets at a time when US duties imposed on stainless steel imports as a result of the Section 232 investigation kept material out of a booming American market.

So what did all this mean for our stainless steel scrap fraternity? For one, scrap prices were subject to significant swings throughout the year without ever matching the levels of volatility witnessed by nickel. On the LME, nickel started out in 2018 at US$ 12,680 per tonne and peaked at US$ 15,745 in June but then subsequent weakness, due in part to the trade war between the USA and China, pushed down the metal’s value to US$ 10,590 by year-end.

The nickel price has been drawing underlying strength from a supply deficit and, according to latest forecasts from the International Nickel Study Group, another supportive shortfall can be expected for 2019, albeit of a lesser scale than in 2018. However, it would be fanciful to believe that price volatility is unrelated to global financial market jitters, or to believe that it will not be a major factor in all our working lives throughout this year.

It would be equally unrealistic to dismiss the ongoing impact of the tariff culture that emerged during 2018. If protectionism endures, we were warned last May by Jason Schenker of Prestige Economics, then a more challenging period potentially beckons for the scrap and wider stainless steel sector.

By Joost van Kleef
ORYX Stainless BV (NLD)
Chairman Stainless Steel & Special Alloys Committee