Less Volatility for Nickel, Stainless Steel in 2015
By Dan Markham, Senior Editor
Overreactions by investors to Indonesia’s nickel pig iron ban and conflict in Russia sent nickel on a wild ride in 2014, but the road is expected to be smoother in 2015.
In early 2014, when the Indonesian government banned exports of nickel pig iron, the nickel and stainless steel industries anticipated a supply shortage that would send prices skyrocketing. The true effect on the nickel market was quite muted, however.
Nickel did see a price spike, running up from less than $14,000 per ton to almost $20,000 per ton by mid May. Yet it wasn’t the Indonesian ban or political upheaval in Russia and Ukraine that drove the change. Rather, industry watchers suggest, traders on the London Metal Exchange were responsible.
“The ride we saw last year was, for the most part, speculation from the fear of a limited nickel order with the closure of Indonesian exports and fears over sanctions against Russia. But LME inventories never really dropped,” says Nicolas Kennedy, global strategic sourcing manager for A.M. Castle and Co., Oak Brook, Ill. Instead of the anticipated decline, nickel stocks actually spent most of the year on the rise.
Speculators and other industry observers seriously overestimated the effect of the ban on the overall nickel market, says Thomas Höhne-Sparborth, senior economic analyst for Roskill Information Services, a UK-based metals and minerals consulting firm. “You were seeing a lot of analysts predicting prices going up to $25,000 or $26,000 per metric ton. That didn’t happen, and there were very good reasons for it.”
For one, nickel pig iron remains a small portion of the overall raw material base, primarily used as a feed stock by Chinese stainless steel producers. When the Indonesian shipments ceased, nickel pig iron producers from the Philippines upped their production to fill the void.
Nickel prices moderated from the May high, spiked again briefly in August, then spent the remainder of 2014 sliding back to early-year levels. “If you look at the supply situation, nothing really changed. We never had a shortage of refined nickel at any time. What we were seeing was the result of some sensationalist reporting,” Höhne-Sparborth says.
Today, the reverse psychology is in effect. Nickel prices, as well as those of other commodities, have been tumbling, leading to fears of further softening. The fundamentals, however, don’t support a major price decline, he says.
“We don’t have a deficit, and there is still raw material from the Philippines going into China. But as we go into 2015, demand will keep increasing and some of that nickel pig iron production will start to slow down,” he says.
If supply gets too low and the nickel price moves too high, producers will increase production capacity and the market will correct. “It’s not optimal to operate at full capacity, but if prices get high enough it may be justifiable,” he adds.
Of course, the price this year could also be influenced by the same culprits as in 2014. “It will be interesting to see what happens with the traders on the LME. That always has a trickledown effect on the industry,” says John Vulchev, vice president of High Temp Metals, Sylmar, Calif.
As wide as they were, the price swings did not harm the market for most stainless and nickel-alloy products in 2014, report service centers. “We didn’t really see any effect,” says Adrian Garcia, international sales manager for Mega Mex, Humble, Texas.
“In 2014, sales were up compared to the previous year, and that’s also the outlook for 2015,” says David Kirschner, president of High Performance Alloys, Windfall, Ind.
Vulchev says his company enjoyed a 9 percent increase in volumes in 2014, an effect that was seen “across the board” with most products.
Experts expect demand to remain strong in 2015. Commercial aerospace, a prime market for nickel superalloys, is forecasting healthy growth for the next few years. “Depending on who you look at, they’re expecting 3-5 percent growth. And that comes with a continued migration toward nickel and titanium alloys in applications,” says Castle’s Kennedy. Other high-end markets, such as marine and pharmaceutical, also are on upward tracks.
One area of concern for specialty metals distributors is the plummeting price of oil and how that will affect the energy market. The price per barrel of West Texas Intermediate fell below $50 per barrel in mid-January, less than half its 2014 peak. Experts say it is already having an effect on the drill rig count and demand for oil country tubular goods. How cutbacks in oil and gas exploration will impact stainless steel demand and pricing has yet to play out.
It was the volatility of the nickel price that drove AK Steel to develop its Chromeshield 22 product, a nickel-free stainless steel with the characteristics of nickel-bearing stainless. However, for many high-performance applications, the options are limited. “For most of the products we deal in, there’s no alternative. A submarine has to get built, and the nickel price is not going to keep it from happening,” says Kennedy. Many of Castle’s customers hedge the market to protect themselves from big swings in the price of nickel and stainless steel, he adds.
Much of the engineering by stainless producers to produce cheaper alloys with less nickel content has already taken place, Höhne-Sparborth says. “In the past we saw substitution in 300 series stainless steel, but that has slowed. That trend may be at its natural end.”
Instead, mills are constantly creating new alloys with new properties that engineers are demanding. “New alloys are being developed, but for the most part they are modifications of existing alloys to optimize properties for particular applications,” says Clare Richardson, a spokeswoman for the Brussels-based Nickel Institute.
On the supply side, distributors say they see a slight lengthening of lead times from the mills, though nothing too worrisome. “Mill deliveries seem a little longer than usual. There seem to be a lot more new distributors getting into the nickel market,” says Garcia.
The slightly longer lead times are an encouraging sign because they indicate healthy demand for 2015, Kennedy says.