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Market sentiment in North America continues to be impacted by concerns that elevated inflation levels, tighter monetary policies and on-going supply chain disruptions will result in an economic downturn and heightened commodity market volatility in the second half of 2022.

For now, the US labour market appears to be resilient, with more than 370,000 jobs added to the economy in June and a low unemployment rate of 3.6%. But for US scrap metal recyclers, elevated labour, energy and regulatory costs are making operating conditions more challenging. 

At the same time, recyclers continue to face commodity market headwinds. There was downward pressure on prices for nickel, carbon steel and ferrous scrap for most of July and confidence in LME nickel trading has yet to be fully restored. As LME Head of Market Development Robin Martin acknowledged at the BIR Convention in Barcelona, nickel trading volumes are down 15-20% this year and the LME is “under no illusion that we have a lot of work to do to rebuild trust in the market”. Part of the exchange’s confidence-rebuilding programme includes an independent investigation into the disruptive events of March this year. On June 23, the LME announced the appointment of management consultancy firm Oliver Wyman Limited to conduct the independent review.

The slower-than-expected growth in nickel usage this year is closely connected to the downturn in global stainless steel output. According to the International Stainless Steel Forum (ISSF), world stainless steel melt shop production declined 3.8% year on year to 14.45 million tonnes during the first quarter of 2022. Of note, the ISSF figures show that first quarter stainless steel production was down 8% in China, 2.5% in Europe and 8.8% in the USA. Stainless steel producers in Europe and the USA are also reportedly confronted by a surge in Chinese stainless imports, contributing to “heavy buyer destocking in anticipation of lower prices”, according to Macquarie Research. The continued appreciation of the US dollar has further incentivized imports and made America’s exports less competitive, both for scrap and finished products.

Looking forward, Macquarie Research notes that even modest growth in global nickel demand will require a sharp rebound in Chinese orders for stainless steel and battery materials. While demand for nickel used in batteries is expected to increase 28% this year, the outlook for global stainless steel demand has deteriorated along with expectations of slower economic growth and reduced consumer spending in the second half of the year. “In summary, the risks to the downside in nickel consumption appear to be growing,” Macquarie reports.