Search Back Issues

Stainless steel still represents 78 percent of global nickel consumption. (Photo courtesy Penn Stainless Products)

Nickel Outlook: Heads or Tails

Service centers see two sides to nickel market

By on
The recent past hasn’t been kind to the nickel market. Between 2015 and 2017, when nickel prices dropped to as low as $7,700 per ton, the market for the metal suffered through its most tumultuous period since the economic downturn of 2008-09.

That all started to change in late 2017, with price momentum starting to move in the right direction. Through the first six months of 2018, nickel increased from $12,680 per ton in January to $15,745 per ton in June. The bounce back in nickel prices was primarily driven by falling inventories and rising Chinese demand, according to Kaynat Chainwala, a commodities research analyst at SBICAP securities. 

Nickel products, including nickel-based alloys and stainless steel, are usedin a variety of applications where heat and corrosion resistance are paramount. Major end markets for the metal include the aerospace, oil and gas, power generation, and chemical processing industries.

However, the production of stainless steel is by far the greatest consumer of nickel worldwide. According to the London Metal Exchange, 78 percent of the world’s nickel supply is consumed by the stainless steel industry.

Anthony Vlahos, manager and cofounder of Houston, Texas-based Ram Alloys, says this makes stainless steel consumption the primary driver of nickel prices. “Stainless steel demand drives primary nickel demand and, therefore, pricing,” he says.

Ram Alloys is a niche supplier of stainless steel and nickel alloy products. Overall, Vlahos says demand for nickel-based products in 2018 has been good compared with past years. “The economy is healthy, and that’s helping the demand piece,” he says. “People are spending money. New projects are coming online.”

Producers such as Haynes International have seen similar upticks in demand. The Kokomo, Ind.-based manufacturer of high-performance nickel- and cobalt-based alloys saw significant volume increases to certain key end markets. Volumes sold into the chemical processing industry jumped 21.9 percent in 2018, while volumes into aerospace and “other markets” increased 11.3 percent and 11.8 percent, respectively.

“This was a record year in our volume shipped into the aerospace market at 9.8 million pounds, beating the prior record level in fiscal 2015 of 9.2 million pounds,” Haynes International President and CEO Michael Shor said during the company’s fourth-quarter earnings conference call. “We continue to see strength in this market primarily driven by new generation engine sales. We remain optimistic regarding demand in aerospace.”

Shor added that fourth-quarter volumes into the chemical processing market were the highest they’ve been in more than three years. “Overall demand in the chemical processing market has continued to improve,” he said.

Despite strong demand from the aerospace and chemical processing industries, overall volumes at Haynes International increased just 1.6 percent. Driven primarily by a 35.9 percent hit to industrial gas turbine volumes, the modest gains at Haynes underscores the tepid optimism felt by distributors.

Adding to service centers’ anxiety is recent price uncertainty. Nickel prices grew significantly in the first half of the year, but since June, LME nickel has dropped more than 31 percent to $10,700 per ton in late November – a low point not seen since October 2017.

Vlahos says the surcharge for 316L stainless steel is another good gauge of the price fluctuations in the nickel market. “Here, you can see 2018 was quite volatile,” he says, noting that the surcharge for 316L went from 64 cents per pound in January to $1.20 in June to 77 cents in early December. “These swings, in surcharge, where you have it up and down, it just causes some uncertainty.”

Because the nickel price started tracking downward around the same time Section 232 took effect, Vlahos suspects the wide-ranging impact of the tariffs, including increased trade tensions with China, have hurt demand for primary nickel, and therefore depressed pricing. “Although the aim of 232 is reasonable, it is certainly having a negative impact on the market overall,” he says. “The trade war put a damper on Chinese trade, and nickel went down. There are other factors, but there is clearly a correlation.”

Additionally, Vlahos points out that the stronger U.S. dollar and a softening oil and gas market are also putting downward pressure on nickel prices. “Because nickel is traded in dollars, when the dollar goes up, commodities traded in that currency go down,” Vlahos explains. “The dollar went up and, correspondingly, nickel price are going down. Also, the rig count drives nickel demand. Oil prices have slumped over the last seven months, so rig count has gone down, along with nickel.”

Another relatively new component for nickel demand is batteries, especially electric vehicle batteries. “There is much speculation that EV demand will boom, which will have a huge impact on primary nickel pricing,” says Vlahos. “Although the reality is that this surge is likely in the distant future, the speculation encouraged the traders, and possibly was the cause of the bump in June.”

Despite price and supply uncertainties, producers and distributors anticipate a healthy nickel market in 2019. “Mills are booked; lead times are continuing to stretch out,” Vlahos says. “I think if the trade piece is solved in 2019, it will be a huge stimulus and demand will explode.”

He thinks prices will be up in 2019. “Most of the mills I’ve talked to are forecasting nickel above $6 per pound, with some forecasting north of $7,” he says. “Nobody has a good answer why they are forecasting an increase. Maybe it’s because LME warehouse stock levels are low, maybe it’s because nickel mine activity is low, maybe it’s because pricing has been down too long. Who knows? But, I’m betting the 2019 nickel price is higher than the 2018 nickel price.”

As for stainless and raw material prices, he says service centers are just asking for a little consistency. “If you’re going to go up, let’s go up incrementally. If you’re going to go down, don’t go down 40 percent in one month. We need some incremental consistency. That allows us to operate in some type of reasonable parameters,” he says.