After a good bull run for nickel and stainless steel scrap over the last two years, the LME nickel price has suddenly returned to reality once again after the short squeeze towards the end of the first quarter. Following these events, Asia’s stainless steel scrap market was suddenly left without a pricing structure as LME nickel was clearly broken by the long positions. Stainless mills in Asia all decided to slow new purchases and to take advantage of high LME nickel to sell their stainless products and to work down their raw materials.
Taiwanese mills’ demand for stainless steel scrap began normally in the first quarter of 2022 but, with the LME nickel bust, they all decided to work down their low-cost stocks and to hold back on new purchases of all nickel units. Owing to soft demand in China, even more Indonesian NPI and stainless hot coils were re-routed to Taiwan, thus boosting its market share. This is a worrying trend for scrap processors which has continued month after month.
Taiwan, which has no restrictions on Indonesian products, is now importing approximately 100,000 tonnes per month of stainless hot coil from Indonesia - up from the 2021 average of 80,000 tonnes. It now also imports a monthly average of 25,000 tonnes of NPI, meaning the equivalent of 25,000 tonnes of stainless scrap.
South Korea’s stainless mills had been stronger than those in Taiwan and yet, following the LME nickel developments in March, the former also slowed their purchases of stainless scrap in April to work down their inventory, returning to the market in April with decent demand. Prices offered by South Korea have not been very strong; however, as they were one of the only good buyers left in the region, scrap processors continued to sell there at thinner margins.
Stainless scrap demand has been slow within China. Local market pricing of 304 stainless scrap remains below international levels while 304 stainless coil futures in Shanghai are trading in the range of RMB 19,000 to 20,000 per tonne. The main reasons are too much supply of nickel units from the Philippines and Indonesia, and demand being adversely affected by, in particular, the Shanghai region being in lockdown since late March. Lockdowns have taken a toll on the economy and may well continue through May.
In Japan, stainless scrap was strong in January and February, with scrap imports outweighing exports for a long time. But here too after events on the LME in March, the country’s two main stainless mills cut back on new purchases and took advantage of the high nickel price by selling at market and working down their low-priced raw materials.
With COVID appearing to be under control in India, most companies are functioning fully and the majority of office staff have returned to work. The Indian Subcontinent has been rather quiet in recent months and mills are either not able to sell their finished goods or have weak order files, thus leading to slower scrap buying. Indian mills fear a correction in nickel and also ferrous scrap prices once the summer holidays begin in Europe. Scrap from Russia is also being offered to India owing to difficulties for Russian scrap yards to export to Europe, but very little of this material is actually being shipped to Indian ports because banks and the financial support system are making such sales problematic.
India’s imports of ferro-nickel have declined substantially in the last two months and this trend will continue throughout the summer.
A fair amount of substitute material such as Zurik is being imported into India in large volumes. This is further processed within India and the various grades of stainless steel are picked out and sold to mills mainly on credit terms, thus eating up some of the share of direct stainless scrap imports into India. The basic approach in India is to wait and watch.
Overall, the outlook for stainless scrap appears slow in Asia until late May, by which time mill demand should return for June as raw material destocking depletes inventories. Until then, nickel should be stable with support from the electric vehicle mega trend, although the Fed rate hike could pop a few bubbles.