Global demand for stainless steel scrap reduced towards the end of June, due to maintenance-related shutdowns in the summer months, according to the Bureau of International Recycling (BIR).
In a quarterly overview of the stainless steel market, BIR noted that order intake has reduced against expectations along with an overall tightness in supply. That said, participants are hopeful the market will pick up pace depending on global recovery from the pandemic.
Demand lags in Asia
Stainless steel scrap demand in Asia- specifically in Taiwan, Japan, and South Korea is lagging compared to the EU and the USA.
Demand in Taiwan picked up after China’s abolition of the 13pc export tax on stainless coils and flat products. However, the mills had already stocked up on stainless steel scrap at the beginning of the year leading to lower spot demand in the country. While demand remained low in South Korea through most of the second quarter, it began to tick up towards the end of June with a sustained climb expected in Q3 2021, BIR reported.
In China, the demand for 304 scrap is lower than Nickel pig iron and ferronickel, the preferred raw material for stainless steel makers in the country. The COVID-19 pandemic has kept demand for stainless scrap suppressed in Japan and it is expected to weaken further in Q3 2021.
Stainless steel production in India is expected to rise from 3.2mn mt in 2020 to 3.5mn mt following the COVID-19 situation improving and businesses reopening with most mills witnessing strong order books.
However, with China setting up massive stainless steel production facilities in Indonesia, the latter is now estimated to produce 75pc more stainless this year compared to 2020, reaching 4.2mn mt, thus surpassing India’s stainless steel production.
India’s total stainless steel imports accounted for 24pc of the total import market. However, this year the country will be unable to import stainless steel from China because of its withdrawal of stainless steel export tax rebate and a reroute of exports to Indonesia. Indonesia’s current stainless steel production capacity is 5.5mn mt with local demand estimated at only 200,000mt per year. As a result, Indonesia plans to become a net exporter of stainless steel to countries like India.
High freight rates continue to remain a key issue across Asia for stainless steel mills as they have almost tripled over the past year, making it difficult to import raw material from countries like the USA and Europe.
Consumption driving US domestic demand
US’ domestic scrap demand and production have increased over the past few months as businesses opened up after COVID-19 related shutdowns and US steel mills achieving 83pc capacity utilization rates in July. The country’s overall industrial production increased by 9.8pc annually in June.
The US’ stainless steel production rose by 9.7pc in Q1 2021 against the previous quarter. though the growth was offset by a 30pc drop in exports of the material from January-May following shipping delays, supply chain disruptions, and shortage of raw material.
However, the overall market is expected to climb as prices for carbon steel and nickel have increased proving a good support to the stainless steel market in the US.
Delivery delays in Europe
There has been a great delay in the delivery of material to consumers from the European stainless steel mills, which are already selling materials for December and January next year, BIR noted. The vast difference in pricing of semi-finished products and finished products is being attributed as the key cause of these delays. As a result, the price of stainless steel scrap delivered to mills in July was €1,600/mt while that for stainless steel sheet from the product was €4,000/mt.
Market speculation has also increased as larger steel mills are trying to replace some of their scrap purchases with ferro-alloys, which are typically not subject to duties while the smaller players struggle with rising raw material costs. Still, the demand for this material remains so high that the market is not expected to change direction soon. Instead, the expectation remains that stainless steel scrap prices will rise even higher if sourcing materials becomes a bigger challenge for mills.
Rising demand drives nickel prices
Nickel prices jumped following China’s growing demand for the material, after declining below $10,800/mt due to the effects of the pandemic. The increase was also driven by strengthening demand in the stainless steel industry and electric vehicles sector.
Nickel prices are anticipated to surge again on high Chinese consumption and move from a 100,000mt surplus in 2020 to a 36,000mt deficit in 2023. Moreover, nickel shortage is expected to be aggravated by its increased use in EVs, whose share in the vehicle market increased by 46pc to 3.1 million vehicles in 2020 and is estimated to ramp up to 11 million vehicles by 2026.
Demand for EV batteries will have to be met by increasing the production of NPI nickel. In fact, Nickel and stainless steel producer Tsingshan has signed contracts to sell 75,000mt of nickel derived from NPI for consumption in the EV battery sector.
The superalloys market was deeply affected by the pandemic unlike stainless steel. While the aerospace sector, a key consumer is recovering, demand from this industry is not expected to strengthen before Q4 2021 as Boeing and Airbus plan to increase production by then.