Subdued stainless steel demand holds back nickel fortunes

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Photo courtesy: Tata Steel Europe

All the base metals have been lifted by an expected end to lockdowns and a pickup in activity, particularly in China this quarter. The weakening U.S. dollar has added a further fillip in recent weeks. However, despite recent gains, nickel price is still down for the year. Nickel has proved to be the laggard, still 5 per cent down from last year’s levels.

This is despite recent comments by Elon Musk during a second-quarter earnings call. Musk called on miners to efficiently mine more nickel to meet Tesla’s massive upcoming demand for the metal, Teslarati.com reported.

Stainless steel still remains the main driver for nickel demand and, hence, its price.

While the coronavirus pandemic has wreaked havoc with many supply chains, particularly among South American miners, ore production in Indonesia and the Philippines has remained relatively stable. The World Bureau of Metal Statistics reported that the refined metal (Nickel) production for the January-May period in Indonesia exceeded demand by 13,200 tonnes. Indonesia’s refined output alone surged 55 per cent year on year.

Unfortunately for the nickel price, stainless steel output tumbled 8 per cent in the first quarter, Reuters reported, citing International Stainless Steel Forum (ISSF) data. Production fell by 9 per cent in China and by 7 per cent in the rest of the world, marking the first synchronized downturn since the fourth quarter of 2018, according to the post.

Stainless steel’s exposure to sectors such as hospitality (cutlery), oil and gas (pipes) and aerospace creates considerable headwinds for the nickel market this year. Overproduction by Chinese stainless-steel producers fighting for market share might mitigate the nickel hit, but only at the expense of a build in stocks further down the chain, Reuters suggests.

Furthermore, battery producers’ demand for the metal will increase as more factories are built. But if the nickel price remains at current levels, new mines will not be brought on stream. Quite the reverse, projects are being shelved for want of an economic nickel price, creating a risk down the line that supplies will not be as plentiful.

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