Since the end of May this year, the price of stainless steel materials in the Chinese market has been rising, with various stainless steel materials rising by 15.73%-36.05%. Among them, the price of stainless steel welded pipe increased by 17.38% on average. Now let us explore the reasons for the rising prices of stainless steel materials in China:
- The price of nickel has risen.
On July 28, 2021, the closing price of nickel on the London Metal Exchange (LME) was US$19,583/ton, the highest since February and a 22% increase from the lowest in April. It is worth mentioning that the difference between this price and the highest closing price of US$19,689/ton (February 22, 2021) so far in 2021 is only 0.5%. This price is expected to continue to rise.
The increase in nickel prices is driven by strong demand and a gradual widening supply gap.
According to Reuters news, strong demand from stainless steel plants and electric car battery manufacturers is expected to support nickel prices in the coming months.
Macquarie analysts said: “This year is one of the most significant changes in nickel consumption, which is driven by the boom in the stainless steel and battery markets.”
Analysts expect nickel demand this year to increase to 2.8 million tons, an increase of 16% over 2020, with a gap of 83,000 tons. In March, he predicted that nickel demand will increase by 10.6%.
The International Nickel Industry Research Group (INSG) released data on Wednesday (July 21) that the global nickel market supply gap widened to 21,300 tons in May 2021, and the April supply gap was 20,400 tons. INSG data show that in the first five months of this year, the global nickel market has a supply shortage of 61,200 tons, and a surplus of 61,000 tons in the same period in 2020.
Compared with the same period last year, the output of 300 series stainless steel containing 8%-9% nickel in the first half of 2021 increased by 36%.
Stainless steel accounts for about 70% of global nickel consumption, while electric vehicle batteries consume less than 10%. However, as the world takes action to reduce carbon emissions, the latter figure is expected to rise as sales of electric vehicles increase.
Due to the disruption of nickel ore supply in New Caledonia, Russia and Canada, this year’s supply is under pressure. Analysts estimate that the market lost approximately 60,000 tons of nickel due to these disruptions.
Restrictions related to COVID-19 have also increased the possibility of delays in new projects in Indonesia, the largest producer this year.
Citi analysts expect nickel prices to reach US$20,500 in the next three months, and said the decline in stocks on the exchanges is a sign that “a tight physical supply is brewing”.
The London Metal Exchange approved warehouses with 219,180 tons of nickel stocks, which has fallen by more than 15% since April, while inventories monitored by the Shanghai Futures Exchange are close to five-year lows.
- Chinese government policy.
Since May, the Chinese government has issued a number of policies to rectify the domestic steel market and demand reductions in production. Among them, the abolition of export tax rebates for some steel products, the rectification of steel production capacity, and the transformation of the steel market have become the main factors.
The abolition of export tax rebates for some steel products means that suppliers will bear more export costs, and this part of the expenditure will eventually be transferred to buyers and consumers, through the increase of upstream or downstream products.
Rectify steel production capacity, including banning unqualified or polluting production capacity, integrating production resources, reducing or prohibiting new production capacity, etc., and speeding up the transformation of steel production capacity to a high-tech, high output value, and pollution-free direction. At the same time, this is also one of the measures to curb the rise in commodity prices.
Change the direction of the steel market so that the domestic market becomes the main consumer of steel products. By increasing infrastructure construction, supporting the development of the electric vehicle industry, urban construction and transformation and other projects, stimulate and expand domestic demand in order to reduce the export of steel products.
- The price of shipping has soared.
Since May, shipping prices have risen at an average weekly rate of 1%-5%, and there is no trend of decline.
Affected by the epidemic in many countries, the situation of shipping containers being stranded, ships jumping into ports, terminal congestion, and inability to lift containers, etc. have intensified. Prices on the China-Europe route have increased by an average of 5-6 times over the same period last year. Routes in other regions also increased 3-5 times.
This has also caused the cost of many raw materials to rise instead of falling. For example, China is extremely dependent on imported iron ore and nickel ore.
- Suppliers cut production.
Due to the above-mentioned reasons, the recent restrictions on electricity use and the impact of the off-season abroad, since July, many steel mills have reduced their production by up to two-thirds to only meet the needs of the domestic market. Some suppliers even suspend export business because there are no orders. This makes the already high price go up.
- Later price trends.
The author predicts that the price of stainless steel materials will continue to rise after July until before the Christmas holiday in December.
