Nickel Takes a Nosedive

Like other commodities, nickel saw a major loss in value in 2015, dropping almost 50 percent. Those in the stainless and nickel-alloy supply chain are hoping for a rebound in 2016.
By Dan Markham, Senior Editor

The great commodity devaluation of 2015 claimed many victims, and nickel was no exception. The key component of 300 series stainless steel, and an important material for its corrosion- and heat-resistant properties, nickel followed the same downward pricing path as iron ore, scrap, aluminum and petroleum products.

Nickel entered 2015 with prices already below historical levels at about $15,000 per ton, a far cry from its highs of more than $50,000 per ton back in 2007. But that January price represented the 2015 high point, as the material began a slow steady dive toward prices not seen in decades. By December, the LME nickel price was below $9,000 per ton, a figure nickel watchers hope is the trough.

“If you look at the shape of the nickel chart, it’s quite dramatic and shows how quickly prices have plummeted,” says Thomas Höhne-Sparborth, an analyst for Roskil Information Services, a UK-based metals and minerals consulting firm. “It has declined for about a year now.”

During his company’s fourth-quarter conference call, Haynes International President Mark Comerford called the pricing drop historic. “Our industry is experiencing one of its most tumultuous periods since the 2008-09 downturn. Nickel pricing is about half, if not less than half, of where it was 12-18 months ago,” said Comerford, chief executive of the Kokomo, Ind.-based manufacturer of high-performance nickel- and cobalt-based alloys.

The result is an industry struggling to stay afloat. Höhne-Sparborth estimates that 60-70 percent of the nickel production industry currently is operating at a loss.

Several factors have contributed to nickel’s price slide, including the general trend toward lower commodity valuations across the globe and the slowing of the Chinese economy. The Chinese have been among the leading producers and consumers of nickel and stainless steel. The opaque nature of China’s economy makes it more difficult for experts to foresee how long the slowdown will last.

The latter half of 2015 also was characterized by an industry-wide destocking cycle, with companies throughout the specialty metals supply chain trying to clear out their rapidly devaluing inventory. “I guess the only positive is that inventories are moving down,” says Jim Seward, president of Penn Stainless Products, Quakertown, Pa.

Some companies have been more successful than others. “Up until September, nickel stocks were still increasing, even as prices were plummeting,” Höhne-Sparborth says. He thinks the end of the destocking cycle is nearing, though it may reach into the first quarter.

He’s similarly hopeful the nickel price has finally reached bottom. The current price is simply not sustainable, he says. Without some recovery, nickel producers must either slash production or fail. “We’re starting to see some announcements of companies cutting back capacity, but not necessarily closures,” he adds.

Seward hasn’t seen any reduction in capacity yet. “A few small firms have closed, and some scrap dealers have been forced out of business because the scrap market is so depressed,” he says. “We’re just trying to weather the storm.”

In the case of stainless, he notes, mills in the past would respond to lower nickel surcharges with higher base prices. But in 2015, the nickel price was coupled with a base metal decrease. “It was a double whammy.”

Jeff Zweifler, vice president of Metalmen, Long Island City, N.Y., says smaller, “boutique” distributors such as his are a bit more immune from the plunging nickel price. “For the guy who needs a single piece of Inconel and needs it shipped today, it doesn’t matter what we pay for it, we get our price. If you’re dealing with 1,000 pounds of 304 stainless, it’s a different story.”

Though nickel’s price may be near its natural floor, few observers predict any real bounce-back before the back half of 2016. “There are too many variables to really nail it down,” says John Vulchev, vice president of High Temp Metals, Sylmar, Calif., citing the ongoing issues with China’s economy, the depressed prices in oil and gas, and global inventory levels. Given the difficulty of making money at the current pricing levels, the supply situation has to correct itself, he adds. “The miners, I assume, will re-evaluate keeping the mines open. They’ll cut capacity, and it will trend toward equilibrium.”

Höhne-Sparborth says nickel needs to be in the $18,000 per ton range to incentivize new capacity, which will undoubtedly curtail plans for any major projects. Even Indonesia, which banned exports of its rich supply of nickel pig iron with the intent of developing a domestic production industry, is delaying its infrastructure investments in the face of the price deterioration.

Though the supply picture remains troubled, demand is decent in the material’s major end markets. Most service centers reported flat to slight gains in nickel sales in 2015, even if the results from the year didn’t live up to expectations. Similar levels of consumption are expected in 2016.

Demand from the aerospace industry, a major destination for high-temperature alloys, remains robust as 2016 begins. “Aerospace and power generation, those are pretty steady,” says Vulchev.

Comerford also sees more life in the power generation industry. “Gas turbine customers are surprisingly more bullish than I expected them to be about 2016,” he says.

The flipside to aerospace is chemical processing. “I can’t remember a slower time for the chemical process industry. The backlogs in CPI are the lowest I’ve seen in seven years,” adds Comerford.

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Thursday, March 22, 2018