Consumer nickel discounts and the European ferro-chrome benchmark will likely weigh on authentic stainless steel scrap prices in early 2020.
US consumer nickel discounts for stainless steel scrap widened to historic highs in 2019 to allow US specialty stainless steel producers to compete with Asian producers, which use nickel pig iron (NPI) for secondary nickel units as a less expensive input. The nickel discount widened by nearly 14pc to 57-59pc, a historic low, since the beginning of the year.
US mills are expected to increase the nickel discount further in the new year. To reverse this course, market participants say that either export markets need to become a viable option for processors — which will require at least a 5¢/lb spread — or generation rates for scrap would need to fall at the industrial level, squeezing supply. These will likely trigger US consumers to decrease the nickel discount to avoid scrap from leaving the continent.
Market participants remained doubtful that either scenario would come to pass in early 2020.
Indonesia also remains the focus of attention for the start of 2020, at which point the government plans to go ahead with an export ban on unprocessed nickel ore. The plan originally called for the ban to come into effect in 2022, and the nickel market reacted after the formal announcement, with prices soaring to a five-year high in September; reaching $18,185/t. China's stainless steel industry relies heavily on nickel ore supplies from Indonesia for NPI production.
Consumer nickel discount and the European chromium benchmark will weigh heavily on processors' buying prices to start off the year.
Nickel prices play a major role in the value of stainless steels with nearly 70pc of all nickel consumed by stainless steel production. London Metal Exchange (LME) nickel prices have come down by more than 20pc since touching their recent high back in September.
Market participants also expect the European ferro-chrome benchmark for the first quarter of 2020 to fall from its current quarter price of $1.02/lb, itself a three-year low. The benchmark is released in Johannesburg by South African ferro-chrome producer Merafe Resources. South Africa's integrated chrome industry has been under pressure as it works with low prices and high input costs.
Pricing volatility persisted throughout the year for the US stainless steel scrap market in 2019, and consumers and processors expect this trend to continue into 2020.
By Pete J. Stavretis
