Viewpoint: Stainless scrap outlook mixed

Stainless steel scrap prices are expected to be mixed in the US for the balance of 2017 as demand continues to improve from the aerospace, defense and the chemical industries, while the recovery for oil and gas remains in its early stages.

Stainless scrap availability or tightness will also impact prices, while demand is expected to remain steady.

Processor buying prices for the bellwether stainless 304 scrap solids are expected to be in the 48-52¢/lb range for the remainder of the year, down from the current level of 51-52¢/lb.

Stainless 304 processor buying prices started the year at 55-56¢/lb on the heels of stronger prices of nickel and other raw materials. They hit a low in mid-June at 46-48¢/lb but have since rebounded.

Stainless 304 scrap prices, which contains 8pc nickel and 18pc chrome, increased by 18pc in the first half of this year from the prior year period. Greatly contributing to this increase was a 50pc increase in the European chromium benchmark to $1.65/lb in the first quarter from $1.10/lb.

The new European chromium benchmark for the current quarter was set at $1.10/lb, which will keep the chromium value for austenitic grades flat for the quarter.

Many are optimistic that nickel prices on the LME can remain in the $9,000-10,000/t range for the balance of the year, keeping nickel-bearing scrap prices stable. LME nickel prices averaged $9,168/t in the three-month period ending July 20 and fell from year highs in the late February-early March period.

Molybdenum-bearing stainless 316 scrap prices are expected to increase slightly in the second half of 2017 to 65-68¢/lb from its current range of 65-66¢/lb. Stainless 316 processor buying prices started 2017 at 68-69¢/lb and hit a low of 62-64¢/lb in mid-June.

Raw material prices such as molybdenum oxide (Mo 57pc) have tumbled nearly 20pc since mid-April due to oversupply. Any nickel spike may off-set falling molybdenum raw material prices and support 316 scrap, which contains about 10pc nickel and 2-3pc molybdenum.

Material tightness along with rising nickel prices have triggered price increases of both 304 and 316 scrap this month. Nickel, which is the key component in determining nickel-bearing stainless steel scrap prices, accounts for approximately 60pc of the intrinsic value of most austenitic stainless steel scrap.

Changes of $250/metric tonne (t) in LME nickel move the intrinsic value of scrap by 1¢/lb. Other factors such as chromium prices and ferrous scrap prices, along with consumer demand, all play an important role in determining the total value of scrap.

Global stainless steel production is expected to increase by 3pc to 47.2mn t in 2017 from 45.8mn t in 2016, according to the International Stainless Steel Forum (ISSF).

Stainless steel growth in 2016 came as a result of Chinese production increasing by 16pc to 24.9mn t. China is the world's largest stainless steel producer, accounting for 54pc of all production in 2016.

This year's slower growth is attributed to weaker consumption in China during the first quarter. Still, promising economic reports including accelerating economic growth and industrial production have lifted the outlook for China demand.

In the Americas, production for stainless steel was 2.93mn t in 2016, while 2015 total production was 2.74mn t, according to ISSF. Production for 2017 is expected to have a slight variation upwards from last year.