In 2016, the lack of U.S. industrial construction activity contributed to the further erosion in demand for stainless-steel products.
Reduced product demand has resulted in an overabundance of inventory throughout the supply chain, forcing nickel to a 10-year low in February. Since realizing rock bottom in February, nickel pricing has responded with gradual increases throughout 2016. The slight gains serve as a positive indicator that nickel prices will continue to creep closer to typical performance expectations over the next few years.
Over the past few months, the supply chain has continued to pass along 20% worth of price increases. These increases are still 50% lower than the high recorded in May 2014. Worth noting, Goldman Sachs supports price increase expectations as evidenced by releasing a statement projecting 2017 as “a banner year for nickel.”
Lower pricing for stainless steel has resulted in increased demand from markets unrelated to industrial construction. The benefit of stainless steel at lower cost has enabled manufacturers of industrial machinery, metal goods, household appliances and electronics to produce consumer goods at attractive prices. Increased demand for nickel as a component in lithium-ion batteries is expected to continue as electric car manufacturers predict 140 million of these vehicles will be on the road by 2035. External influences coupled with reduced on-hand inventory and optimistic industrial construction forecasts for 2017 should result in gradual, yet consistent inflation.
China currently accounts for more than 50% of the world’s stainless-steel production. Estimates show an increase of 7.8% in production for 2016. China’s stainless-steel production success is dependent on the Philippines’ ability to supply nickel ore. With 97% of China’s nickel ore sourced from Filipino mines, close attention is being paid to recent closures. Mine operations suffered as demand decreased and stockpiles satisfied consumer needs. Struggling mines were delivered a second blow as environmental concerns resulted in increased operational scrutiny. Through August 10, mines were shut down with another 20 potential closures looming. The closures would directly impact stainless-steel material supply with as many as 12 nickel mines no longer in operation. The reduction in Filipino mine output could potentially cause minor disruption to raw material supplies.
The most significant unanswered market influence is Indonesia’s unlikely easing of the 2014 moratorium placed on mineral exports. Should Indonesia partially lift the moratorium, nickel supplies could become more readily available and cushion any disruptions stemming from Filipino mine closures. Additional influences include the performance of the U.S. dollar, global equities and oil prices.
Outlook for some key stainless-steel products
The U.S. International Trade Commission determined U.S. manufacturers were materially injured by reason of imports of welded stainless-steel pressure pipe from India sold below fair market value. During this “dumping” period, about $47.5 million worth of material entered the U.S. market. Total import value from all other countries totaled $102.6 million during the same period. Top importers in order of value during this period were Taiwan, India and Korea. As result of the ITC’s decision, the U.S. Department of Commerce has issued antidumping and countervailing duty orders on imports of this product type from India. Stainless-steel pipe is expected to see market pricing increases during 4Q16, which should continue into 2017. The increased expectations stem from market pricing corrections related to the antidumping suit and expected increases related to chrome and nickel.
Pricing and demand is expected to remain consistent through the balance of 2016.
Price increases are expected in 2017 with no dedicated timeline.
Pricing and supply-chain expectations are considered stable for the foreseeable future.
Demand is heavily tied to the performance of the oil and gas industry. Current expectations are that supplies will continue to be readily available with stable pricing.