(The opinions expressed here are those of the author, a
columnist for Reuters)
By Andy Home
LONDON, Oct 11 (Reuters) - Global steel demand will rise by
a meagre 0.2 percent this year, according to the World Steel
Next year won't be much better with a forecast of just 0.5
But it could have been worse. The WSA has upped its
forecasts from April, when it was expecting demand to fall by
0.8 percent this year.
The improvement is all about China, where production and
demand have been lifted by the government's latest stimulus
package, another push of the infrastructure and construction
Within the steel universe, however, one sector is faring
Stainless steel production rebounded strongly in the first
half of this year, thanks again to China.
And that has implications for two of the metallic inputs
into the stainless production process, nickel and ferro-chrome.
The latter is one of those metals that trades largely in the
shadows for want of exchange-traded pricing.
But that may be about to change with the London Metal
Exchange (LME) eyeing a potential new contract.
Graphic on China's stainless steel production:
Global stainless production rose by 4.1 percent to 22.1
million tonnes in the first half of this year, according to the
International Stainless Steel Forum (ISSF).
That represents both a strong recovery from last year, when
production fell by 0.3 percent, and an outperformance relative
to total steel production, which fell by almost two percent over
the same period.
And, unsurprisingly, this is again all about China, which
produces over half the world's stainless steel.
Chinese production surged by 11.5 percent in the second
quarter, boosting first-half growth to 7.9 percent.
Domestic demand has been booming but so too have exports, a
mini drama within the broader story of rising pushback against
the flood of Chinese steel exports.
The trade tensions are there to see in the ISSF's regional
breakdown. Other than China the only other region to experience
stainless production growth was the rest of Asia.
Output in the rest of the world declined, a trend that may
start reversing as the trade sanctions accumulate.
THE NICKEL EFFECT
Stainless steel is a core driver of demand for nickel, a
market which is currently fixated on the shifting supply
dynamics arising from government policy in Indonesia and the
Indonesia was the major supplier of nickel ore for China's
production of nickel pig iron, a form of the metal used for
The country banned ore exports in 2014 in a drive to force
its miners down the value chain. The policy has been only partly
successful. There has been some build-out of smelter capacity,
and in the case of China's Tsingshan, even stainless capacity.
But other smelter projects have struggled to get off the
ground and the government is now mulling whether to relax the
ban for those that have started construction work.
The Philippines filled the ore supply gap after the
Indonesian ban but the country's nickel production has been
thrown into disarray by a draconian environmental review of its
A quarter of the country's miners have been closed with
another 20 of them under the threat of suspension, many of them
Which begs the question of how China's stainless steel
producers are getting sufficient nickel to feed such strong
The answer, according to analysts at Macquarie Bank, is by
blending higher-content concentrates and even refined metal into
their ore mix. ("Nickel and the Philippines - the big surprise
of 2016", July 13, 2016).
There is, after all, no shortage of refined nickel around,
particularly in China, which has lifted imports by 68 percent to
290,000 tonnes so far this year.
This relatively new usage of primary metal in the stainless
production process may be one reason why Chinese nickel demand
is up eight percent so far this year and global usage six
percent, according to the International Nickel Study Group.
THE FERRO-CHROME EFFECT
Stainless steel producers also need ferro-chrome and China's
surging output has already translated into strong price rises,
again according to Macquarie Bank. ("Chrome swings back to a raw
material constraint", Oct. 5, 2016).
This market is still characterised by producer benchmark
South Africa's Merafe Resources settled European
deliveries for the fourth quarter at 110 cents per lb, the
highest level in two years and a 12-cent increase in a quarter
normally characterised by price weakness.
That reflects a shortage of chrome ore further upstream,
particularly falling production in South Africa, the world's
China has no chrome resource of its own and is highly
dependent on South African supply. Port stocks, according to
Macquarie, are at multi-year lows thanks to booming demand from
The bank does expect some pick-up in supply but "overall, we
are looking at a chrome market where inventories will continue
falling over the coming years".
With Indonesian stainless capacity rising, thanks in large
part to that government policy on pushing for value-add in the
nickel sector, "the coming years may well see an ongoing
scramble for supply."
None of which would normally make many headlines outside of
the small world that is the chrome market.
But ferro-chrome has made it onto the radar of the London
Metal Exchange (LME).
A group of industry participants recently met in London to
discuss the idea of a new contract, according to Metal Bulletin.
The idea of a London ferro-chrome contract has done the
rounds before but this time seems to be gaining traction to the
point that the exchange is happy to confirm the interest.
"The LME has been approached by industry users regarding the
introduction of an LME ferro-chrome contract," it said.
"We believe in developing products in conjunction with
participants to meet the real needs of the market, and are
committed to assessing and enhancing our offering as effectively
So watch this space.
The current stainless steel surge may be about to have a
bigger impact than just boosting demand for nickel and
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