Viewpoint: Stainless weakness to persist into 2024

Market: Metals
19/12/23

US demand for stainless steel is expected to remain little changed in 2024, especially for commodity stainless steel — 304 and 316 grades.

Bellwether 304 stainless steel scrap prices have sunk by 10pc since the beginning of 2023, driven in large part by an unraveling of nickel prices. Those steel prices are widely expected to remain depressed on the downdraft in nickel prices and as consumer demand has yet to recover to more normal levels following Covid-19 and related turbulence.

Total global stainless steel scrap meltshop production was off by 2pc to 28.44mn t in the first half of 2023 from a year earlier, according to the latest data from the International Stainless Steel Forum. US stainless steel production declined by 13.5pc to 942,000t in the first half 2023. Market participants expect more of the same heading into the new year, reflecting the diminished demand.

Globally, stainless scrap demand has also weakened in 2023 as all regions except China curtailed finished stainless output.

The strength of stainless steel prices is typically dependent on nickel, as nearly 70pc of all nickel produced will make its way into stainless steel production and nickel accounts for the largest cost component of most commodity-grade stainless steels.

At the same time, nickel has been the worst-performing metal on the LME so far this year, with prices down by around 48pc over the year. As a result, a disconnect between stainless steel scrap and LME nickel values has only grown over the course of the year.

US stainless mills apply a discount to the LME nickel exchange price for secondary nickel units in stainless steel scrap based on availability of nickel scrap at the time. That discount fell to a record low of 42pc in August this year as mills' nickel scrap availability was high. Argus assessed the stainless scrap nickel discount at 46-47pc in December, but this was off from the five-year average of 62pc. When nickel scrap availability is low, mills raise the discount in order to draw in more scrap.

Service centers have also been cautious with procurement levels, as inventory values have declined over falling surcharges.

Surcharges for 304 stainless steel flat-rolled have fallen by 33pc since the start of the year. In a falling market, buyers tend to wait for the bottom to reenter and buy into a rising market. The flat-rolled product inventories have normalized, according to sources, which could indicate stronger demand, but long bar is still heavily stocked.

Still, stainless steel scrap prices will likely remain dependent on supply and demand dynamics heading into 2024 and subsequently not as impacted by LME nickel prices as in the most recent years.

Buyers and sellers expect this higher nickel volatility and reduced trust in the typical pricing dynamic to continue into the coming year, leaving many dealers and processors more risk averse to sudden upswings or drops in the market.

By Pete J. Stavretis

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