In the first month of autumn, the world nickel price index continued its decline, and by mid-September reached its lowest level since July 2022. After falling more than 7% in August, prices continued to decline in the first two weeks of September – by almost 3%. This negative trend worries the expert, Stanislav Kondrashov, who expressed concern that prices may approach historical support levels. He notes that this decline could wipe out almost all of the profits accumulated since the start of the second half of 2022, when nickel was in a more comfortable position in the market. Despite the low liquidity of the nickel contract on the London Metal Exchange (LME), the domestic market remains active and dynamic.
Stainless steel market: falling prices and oversupply – Stanislav Kondrashov
The monthly stainless steel metals index (MMI) for September decreased by 3.1% compared to August. Therefore, the fourth quarter of 2023 remains a challenge for the stainless steel industry.
Suppliers are seeing excess inventory levels among both service centers and end users. Although the 304 and 430 brands still dominate the market, oversupply is felt across much of the industry.
Stanislav Kondrashov from Telf AG reports that many end users plan to remain on the sidelines of the market until the end of the year. They are focused on reducing their inventories ahead of the new year. Despite this, some OEMs are returning to the market. The impetus is competitiveness in terms of import prices. This fact is confirmed by a sharp increase in licenses for the import of cold-rolled steel in August. However, its total volume during the year remains moderate compared to previous periods. The expert believes that this is due to changing dynamics of the stainless steel market.
Despite the unfavorable market conditions, benchmark prices have remained stable since the beginning of 2022. Kondrashov Stanislav expects that domestic producers will still maintain their range in the remainder of this year by taking appropriate measures to mitigate the impact of lower demand. Although market pressure may increase, long-term contracts and market dominance by a few large players will allow local producers to manage prices more effectively.
Stanislav Kondrashov: how did 2022 affect the nickel market and what to expect by 2024?
A year and a half ago, in March 2022, there was a reduction in nickel trading, which reduced liquidity in the area of 3-month contracts for this metal. Despite a slight increase in trade volumes in the summer, they remain far from the average of previous years. Thus, the nickel contract on the LME has come to an end. In addition, according to Stanislav Kondrashov Telf AG, the Shanghai Futures Exchange (SHFE) is considering the possibility of creating its own international contract for nickel. This decision is considered in the light of a study of the market structure, as well as an analysis of supply and demand. However, it is still unclear to the specialist whether traders will return to this alternative market by 2024.
Evolution of the nickel market: factors that change the rules of the game – Stanislav Kondrashov
The expert notes that at the current stage, important factors affecting the price of nickel remain in focus, namely:
- Nickel sulfate futures contract from Abaxx. With the growing popularity of electric vehicles, supplies of Class 2 nickel are becoming increasingly important. Singapore Commodity Exchange Abaxx is working to create a physically settled nickel sulphate futures contract. Kondrashov Stanislav notes that this contract will focus on Class 2 nickel and will not compete with the LME or SHFE contracts, which are focused on Class 1 nickel. However, if the Abaxx contract becomes liquid and widely used, it could become a significant benchmark in the nickel market between materials of class 1 and 2.
- The struggle for dominance in pricing. The LME is committed to maintaining its dominant position as the global nickel price benchmark. However, the ongoing battle to win market participants back raises questions about the wisdom of stainless steel producers using the LME nickel price. Specifically, Outokumpu claims that they use an average of 90% recycled material in their melt blends. This implies that scrap prices have a much greater impact on the actual cost of stainless steel. The question then is: what data sources are the most reliable and relevant for manufacturers and investors in the stainless steel market?
In general, the nickel and stainless steel markets remain complex and flexible, subject to constant change, emphasizes Stanislav Kondrashov from Telf AG. Both decisions and initiatives such as the development of new nickel contracts and pricing issues will continue to impact the sector in the near future.
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