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Rising interest rates, slower manufacturing output and mostly softer commodity prices were sources of concern for US recyclers in late 2022. At the same time, nickel prices had the best price performance among the major base metals last year on the LME.

At the start of 2023, however, not many forecasters were expecting nickel prices to replicate last year’s performance as global nickel and stainless steel markets are rebalancing. According to worldstainless, global stainless steel melt shop production declined 5.1% year on year during the first nine months of 2022 to 41.85 million tonnes. Production declines in the West were significant, including a 13.2% reduction in US stainless steel output. 

Given the shifting patterns of stainless steel production, 2023 got off to a somewhat better start for stainless scrap recyclers than would have otherwise been expected as their prices followed the increases for carbon steel scrap in January with steel mills in the West looking to implement price hikes. Meanwhile, North American Stainless (part of the Acerinox group of companies) recently announced a US$ 244 million expansion at its Ghent facility in Kentucky that will boost the company’s production capacity by 20%.

Overseas demand for stainless scrap has also been healthier than expected. According to US Commerce Department data, exports increased 32% year on year in January-November 2022 to 358,000 tonnes on improved demand from Mexico, Taiwan, Canada and India. As inflation readings show early signs of improvement in the USA, investors are starting to expect that the Federal Reserve will wind down the pace of rate hikes. In turn, potential US dollar depreciation and lower-than-expected interest rates could help spur trade flows and capital investment.

But significant questions remain, especially regarding the LME’s ability to serve as the centre of nickel trading and price formation. Reuters reports LME nickel trading volumes were down 28% in 2022 while the same volumes in Shanghai plunged 70% lower. For the LME, the road back to restoring confidence may be longer than previously expected. Released in January, the independent review of nickel market events conducted by Oliver Wyman identified significant problems that the LME still needs to address. In addition, the LME’s decision-making and governance are the subject of on-going regulatory reviews by the Bank of England and the Financial Conduct Authority.

Another challenge for the LME is taking shape in the form of an announcement from Global Commodities Holdings - which is headed by the LME’s former CEO Martin Abbott - that it will launch a new physical trading platform for nickel in February. Having a transparent, functional nickel price discovery mechanism is critical for market participants across the nickel and stainless steel supply chains.

Looking forward, the World Bank is forecasting that the average nickel price will decline to US$ 21,000 per tonne in 2023 and US$ 20,708 in 2024 from around US$ 29,000 recently.