Stainless Steel

Stainless Steel Global Market Outlook

MARKET OVERVIEW

Global Stainless-Steel Production: 58.6 MMT (2022E)

Global Stainless-Steel Consumption: 47.42 MMT (2022 E)

• Stainless sheet buyers remain under allocation with mills asking for orders eight to 12 weeks before rollings and shipments arriving 12 to 16 weeks after the order is placed. Project demand remains strong, but customers are holding off on placing volume stock buys

• The weaker demand and the change in market conditions have been made evident by markedly shorter lead times. Material was currently available from most mills for August delivery, while through much of 2020 and 2021 lead times had risen to around six months. Underlying consumption from end-users has remained healthy for the most part, but multiple distributors reported lower offtake from certain customers that have been suffering from shortages of a wide range of other components as a result of disrupted supply chains and logistical problems caused by the war.

• Major mills have also been competing to destock, which has weakened demand as well. Although the Covid-19 outbreak in the past two months has dampened demand, leaving stainless steel mills with high inventory levels, it has had less of an influence on stainless steel production. China's yuan continued to depreciate during June, pushing down stainless-steel export offers.

Stainless Steel Market Overview – Global

• According to figures released by International Stainless-Steel Forum, World stainless steel melt shop production rose by 10.6 per cent year on year in 2021 to 56.3 million tonnes. Output increased in all regions monitored by the ISSF, with Asia, outside of China and South Korea, showing the largest climb of 21.2 per cent year on year to 7.8 million tonnes. However, this made up just 13.8 per cent of the overall total as 2021 has been an exceptional year for the global stainless-steel industry.

• Throughout the global supply chain, almost all the companies is expected to post very strong financial results for the period. Steelmakers have benefitted from a substantial upturn in selling prices despite an increase in their input costs. Many of them are posting record profits, following several consecutive quarters of growth.

Stainless Steel Global Production and Consumption

• Despite a slowdown in activity at the year-end, most market participants remain optimistic regarding the prospects for 2022. Buyers have become increasingly cautious with their purchasing. The spread of the Omicron variant, rising inflation and ongoing supply chain constraints will continue to challenge business operations in the current year.

• Mills have more material in stock than they have typically held in the last year and a half. With nickel prices falling, offering prices from non-mill sellers - distributors, brokers and others is expected to weaken. However, Stainless sheet buyers remain under allocation with mills asking for orders eight to 12 weeks before rolling and shipments arriving 12 to 16 weeks after the order is placed. As far as demand from the appliance industry has slowed, while automotive demand is still strong. The oil and gas industry is still busy and construction is still pretty good.

Stainless Steel Drivers and Constraints

Drivers

• Supply, while improved, remained tight with some sources reporting that mills still have buyers on allocation or controlled order entry for upcoming production. Supply has improved in part due to a surge in imports coming into the market. A steady flow of imports could help bring the market back in the supply-demand balance by the fourth quarter of 2022 or the first quarter of 2023.

• Nickel prices witnessed a fall of an approximate 10% during the May 2022 period indicating signs of increased supply unlike the 2021 where there was a shortage of around 168,000 tonne unseen in almost a decade. Base metals prices on the London Metal Exchange were all down with renewed fears of further Covid-19 lockdowns in China dampening sentiment across the complex.

Constraints

• Supply constraints continue to be the key factor, cited by market participants for upward pressure on stainless prices. The lack of availability of material in the face of steady and sometimes rising demand in some sectors has led to declining inventories, with lead times out to 12–16 weeks. Demand is nearly two to one over supply, but customers are reacting to market shortages and trying to secure material through large stock buys

• The overall supply in the nickel market is relatively tight, with fewer market sources. Global nickel market will have a shortage of 168,000 tons this year, causing nickel prices to rebound sharply. Adding to that, fall of nickel inventory to a two-year low, along with the dropping of Shanghai nickel inventory, coupled with China’s economic appeal on strong and steady growth, nickel prices is expected to bounce back in medium term. Indonesia’s planned ban on exports of nickel processed below 50% and China’s stimulus policy to drive the demand for new energy vehicles is expected to cause nickel prices continue to fluctuate.

Cost Structure Analysis : Stainless Steel

In the emerged markets such as North America and Europe, the total price for stainless steel is divided into three parts: Base price, extras, and alloy surcharge.

Base Price

• The base price remains constant over a long period and is reflective of the operating cost, excluding the raw material cost. The constituents of base price include cost, such as fixed cost, minor consumables, labor and energy cost, and other production cost, such as rolling charge. Typically, the base price constitutes to 30–45 percent of the total stainless-steel price

Extras

• Extras are material-specific charges for non-standardized product dimensions and are added or deducted to/from the base price. Typical extras are applied for special thicknesses, surfaces, packaging, etc.

Alloy Surcharge

• Stainless steel pricing is highly influenced by the volatility in its raw material (mainly nickel) prices. In order to mitigate the volatility and protect their operating margins, stainless steel mills in the US and Europe follow an “alloy surcharge-based pricing system”

• This system ensures that the risk of price volatility is shared equally by both the stainless-steel mills and consumers. Alloy surcharges are product specific, and are usually published month-on-month

In the emerging markets such as Asia, the total price of stainless steel is largely impacted by nickel prices.

Stainless Steel Price

• There is no alloy surcharge price separately, however, producers decide the stainless-steel prices, based on the volatility in the nickel price and use it as the benchmark to decide the final price of stainless-steel prices

Extras

• Extras are material-specific charges for non-standardized product dimensions and are added or deducted to/from the base price. Typical extras are applied for special thicknesses, surfaces, packaging, etc.