Viewpoint: Stainless gains momentum into 2021

US stainless scrap prices are widely expected to remain at high levels going into the first quarter of 2021, supported by a combination of tight supply and high raw material costs.

US stainless scrap 304 solids prices topped 68¢/lb on 15 December for the first time since April 2018. Stainless scrap 316 solids prices were assessed as high as 88¢/lb, levels not seen since August 2018.

The stainless steel industry has gradually rebounded after the Covid-19 curtailments and shutdowns, with most market participants holding an optimistic outlook heading into the new year.

Market participants cited scrap tightness and rising raw material costs as the key drivers heading into the new year, with an extra emphasis on the difficulty in securing sufficient truckloads.

Recently, supply shortages of commodity grade stainless steel scrap have confronted US stainless processors and producers. Any shortfall in secondary nickel units will likely increase the consumption of primary nickel, adding to the raw material costs. Therefore, some buyers have bid up the market to obtain prompt available austenitic scrap.

Scrap generation rates fell dramatically earlier in the year amid Covid-19 manufacturing and production slowdowns. With the ramp up of demand and stainless steel production as the economy recovers, the US market has entered a window in which scrap consumption is outpacing generation. Sources expect this could last easily into the first quarter of 2021.

In addition, nickel, which accounts for upwards of 60pc of the cost of most austenitic stainless steel scrap, recorded a 14-month high in December. During the first six months of the year, nickel decreased to $12,837/t in June from $14,165/t in January, led by weakness stemming from the pandemic and subsequent recession. Over the balance of the year, nickel prices have climbed to $17,685/t as economic activity rebounded in the second half.

A weak US dollar, strong stainless steel demand from China and Indonesia, along with healthy manufacturing activity in China contributed to the rebound in nickel costs. China's official manufacturing purchasing managers' index rose to 52.1 in November, the highest reading in over three years.

Still, higher costs are expected only to play a part in stainless costs. The last time nickel prices surpassed $17,636/t ($8/lb) in October 2019, 304 scrap solids held only 71pc of their current value. Although partially to do with lower iron and chrome costs, sources widely credited this discrepancy to greater scrap supply. Heading into 2021, nickel has shown no signs of weakening.

Similarly, ferrous markets have notched noticeable gains lately. Ferrous scrap #1 busheling Chicago prices rose by $80/gt to $385/gt in the monthly trade for December, the highest levels since January 2019. High iron ore and pig iron costs, an ever strengthening hot-rolled coil market as well as staunch seaborne demand are also projected to support the ferrous markets in January.

Looking forward, momentum will likely carry over to 2021, sources said, with the escalation of raw material costs, tightening of supply and consumer demand continuing to improve.

By Pete J. Stavretis