Viewpoint: Stainless scrap looks to maintain uptrend

The stainless steel scrap market enters the second half of 2018 supported by positive consumer sentiment and LME nickel price momentum.

Scrap prices for stainless 304 have gained 13.7pc this year, lagging increases in LME nickel prices. Processor buying prices ended the first half at 66-67¢/lb, up from 58-59¢/lb since the beginning of the year.

Stainless 304 prices are expected to remain around these levels or slightly higher as LME nickel prices remain elevated amid falling LME stocks, according to market participants. LME inventories had fallen by 26pc to 272,616/t at the end of June from 366,612/t at the start of the year.

Nickel, a key component in determining nickel-bearing stainless steel scrap prices, accounts for approximately 60pc of the intrinsic value of most austenitic stainless steel scrap grades.

Through the first half of 2018, LME nickel was the best performing base metal, gaining 17.8pc.

Most market participants are optimistic that nickel prices on the LME can hold up in the $14,000-$16,000/t range for the balance of 2018, which would help keep nickel-bearing scrap prices such as 304 and 316 stable or rising upward.

Molybdenum-bearing stainless 316 scrap prices for 2018 could also gain momentum. Stainless 316 prices for scrap solids ended the first half at 93-94¢/lb after starting the year at 78-79¢/lb.

Raw material prices such as molybdenum oxide (Mo 57pc) increased only 2.3pc through the first half while ferro-molybdenum (65pc) had no change. Molybdenum prices are expected to remain at current levels with little variation for the balance of the year. Material tightness and nickel prices will continue to impact molybdenum-bearing scrap prices in 2018.

Consumer demand for stainless steel and specialty alloys is anticipated to increase for the remainder of 2018 as new tax legislation passed in the US late last year injects optimism into manufacturing industries.

LME inventory stocks reached a four-year low amid rising Chinese stainless steel demand, while a growing electric vehicles (EV) sector has also helped support nickel.

Annual nickel demand from the EV market could translate into approximately 200,000 t/yr, or 10pc of world nickel consumption, in the next five years as EV production grows to 15mn units/yr.

The International Nickel Study Group (INSG) expects the global primary nickel market deficit to increase in 2018 despite a rise in primary nickel production.

INSG forecasts a primary nickel market deficit of 117,000t this year, a tick up from 116,000t in 2017 and much wider than 44,000t in 2016.

The group expects global primary nickel production to increase by 7pc to 2.23mn t in 2018 from 2.07mn t a year earlier and 1.99mn t in 2016.

Another key component in pricing stainless steel scrap is chromium. Bellwether 304 stainless contains approximately 18pc chromium. The new European chromium benchmark for the third quarter of 2018 is established at $1.38/lb, which will keep the chromium value for austenitic grades flat for the quarter.

The European benchmark declined only 4¢/lb, a more modest drop than expected. Ferro-chrome supply is dominated by China and South Africa. Demand has fluctuated over the past two years, impacted by chrome supply and the outlook for the stainless steel industry.

Global stainless steel production is expected to grow at about 5pc in 2018, having increased by 5pc to 48mn t in 2017 from 2016, according to the International Stainless Steel Forum (ISSF).

China is the world's largest stainless steel producer, accounting for 54pc of all production in 2017, according to ISSF. In the Americas, production for stainless steel was 2.75mn t in 2017, down from 2.93mn t the prior year, according to ISSF.