Stainless steel industry facing stubborn challenges

This year's extraordinary nickel pricing developments on the London Metal Exchange (LME) have added to an already imposing list of challenges the stainless steel sector is facing.

Impact of suspension in LME trading

The suspension of nickel trading on the LME between 8-16 March, 2022 has caused a loss of confidence in the LME's ability to provide transparency and liquidity - this at a time of rising geopolitical risks. Traders, understandably, had been left upset by the LME's inability to price the metal during that particular period.

There was an impact of the suspension in trading, especially since many companies had been forced to pay a "huge" amount in margin calls. Buying and selling stainless steel scrap has required extra patience in the first half of this year, said committee members of the Brussels-based Bureau of International Recycling (BIR).

Robin Martin, LME's Head of Market Development, explained that the sudden suspension of trading was followed by a price spike in Asia which was regarded by the LME as "disorderly market trading" and "disconnected from any observed fundamentals". He acknowledged that the "controversial" decision had provoked "huge frustration", adding that the LME was "under no illusion that we have a lot of work to do to rebuild trust in the market".

LME nickel volumes were down 15-20% on to the corresponding period last year (Mar'21), thus indicating that users were "nervous of recommitting to the market", Martin said.

Other challenges

Russia-Ukraine conflict: The Ukraine conflict and associated sanctions on Russian nickel exports, higher energy prices and their impact on production costs, rising inflation, lowered economic growth projections, major supply chain disruptions and labour shortages have all impacted the stainless steel sector. This confluence of events could be described as "a perfect storm", as per the BIR committee.

China demand low: Where Asia is concerned, stainless steel scrap demand in China has been slow, partly as a result of Covid-19-related lockdowns, while many mills in India held weak orderbooks, SteelMint understands.

India's export tax imposition: In a very significant development late on 21 May 2022, the Indian government imposed hefty export duties on stainless steel in a bid to preserve higher domestic supplies and control rising prices. The government has also waived the existing import duty on ferro nickel which is major source of nickel for manufacturing the 300 series of stainless steel. Clearly, the government wants to control prices of stainless steel to ensure higher supplies to the domestic industry.

• A 15% export duty was levied on flat-rolled products of stainless steel and a 15% duty was levied on bars and rods, as well as angles, shapes and sections of stainless-steel.
  
  
• The ongoing tariffs may have an average impact of INR 5,000-6,000 per tonne of stainless steel exports, SteelMint learnt.
  
  

In an additional impact of the new tariffs, stainless steel exports to East Asian countries will not be possible right now, although doors are still open for Europe, at lesser margins.