With these regular updates, we seek to paint a clearer picture of the myriad factors impacting supply and demand of stainless steel and special alloys which–ultimately–affect the price and availability of our products.

Steelmaking Surcharges

Steelmakers use a base-plus-alloy surcharge pricing structure to accommodate the wide variability in input costs. While base prices remain relatively stable, often locked in by long-term contracts, surcharges are adjusted monthly to reflect the volatility in raw material and, increasingly, energy prices.

In our previous Market Brief, we discussed the March spike in nickel prices and its impact on the cost of stainless steel. Producers sought to recover costs above “normal” through elevated surcharges. For instance, North American Stainless issued a $2.1484/lb. surcharge on its 316/316L product in April, a 15.4% month-on-month increase.¹ Surcharges peaked in May before falling back in line with levels seen before the spike.

Beyond raw material inputs–which include chromium, molybdenum, manganese, and iron ore in addition to nickel–energy has become part of the pricing matrix.

The Impact of Energy Costs

Rising energy costs are a concern for European mills especially. The continent relied heavily on Russian natural gas to the tune of 40% of its annual supply.² Dwindling and subsequent shutoff of flow from Nord Stream 1 came when supply shortages in the face of increasing demand were already being felt as economies re-opened post-pandemic on the heels of an unseasonably cold winter in 2021. Prices soon climbed into uncertain territory.

The chart below shows the cost of natural gas via forward month Dutch TTF Natural Gas Futures over the past five years. It shows prices hovering between 10-25 EUR/Mwh until 2021. Prices peaked in August 2022 at 339 EUR/Mwh and at time of writing this brief on December 12, 2022, stand at 134.5 EUR/Mwh, a relaxation but hardly a reversion to the mean.³

The departure from previously reliable low-cost energy has encouraged steelmakers to incorporate energy into their surcharge pricing models. Average energy surcharges issued by British stainless steel long product manufacturers fell for the first time last month since July.⁴

However, with the situation far from certain, firms are taking additional measures to reduce the impact of energy costs on their bottom line. Worried its annual energy bill of £110,000 could reach £400,000 at current consumption levels, Leeds-based Pland Stainless distributed more “thermally efficient” clothing to its staff as it turned the heat down a few degrees.⁵

US Enjoys Relatively Cheap Energy

Henry Hub prices are recognized as the benchmark for US natural gas prices. For the week of December 2, 2022, spot prices were 6.06 USD/MMBtu.⁶ This equates to 19.58 EUR/Mwh.

Energy prices may be included in US surcharges, but do not have the same impact on pricing as they do in Europe. For example, Cleveland Cliffs issued a November surcharge for 316/316L precision strip less than or equal to .015” thick of $1.6565/lb. Natural gas accounted for just $.0157/lb., or less than 1%, of the total.⁷

Albeit on a different scale, energy prices have fluctuated more than normal in the US as well. The U.S. Energy Information Administration recently released their expectations for higher wholesale energy prices this winter in every region of the country. Figures they shared included an anticipated 31% increase in the Southwest and a 60% increase in the mid-Atlantic and Central regions.⁸

A Checkered Report: Stainless Steel Demand in 2022

Brussels-based research and development association worldstainless expects a 0.6% reduction in stainless steel consumption globally in 2022.⁹ To be sure Europe is battling higher-than-usual energy prices and dealing with the war in Ukraine while the Fed’s continued pursuit of higher interest rates makes many in the US weary, but the most significant driver of decreased demand is China’s slowing economy.

Chinese consumption is expected to decline 2.3% in 2022, the first year-on-year fall since 2008.¹⁰ Production has slowed along with consumption in large part due to the country’s zero-Covid policy.

In addition to being the world’s largest consumer of both steel and stainless steel, China is also its largest producer. Six of the world’s ten largest steel makers are Chinese entities. The country was responsible for 52.9% of all steel and 56.0% of all stainless steel production in 2021.^{11 12} This is to say that what happens in China influences global statistics and perspectives on the industry as a whole to a significant degree.

Case in point, reduced demand is not being seen in other parts of the world. Gains of 3.1% in the Americas and 5.1% across Europe and Africa are expected in 2022.¹³ Increased demand in these regions combined with fewer Chinese exports has maintained pressure on prices.

Indian Steel Returns to the World Market

A further restriction in supply came during the months May through November when the Indian government employed a series of export tariffs on steel products in an attempt to protect the domestic market from inflationary pressures. The results were, instead, damaging to Indian producers.

Dependent on export sales, steelmakers such as Tata Steel, JSW Steel, Jindal Steel and Power, and Steel Authority of India reported poor third quarter results. Though net sales rose 7.9%, operating profit declined 69%, and net profit plunged 96% from a year earlier.”¹⁴

In response to pressure from steelmakers, the tariffs were lifted in November. If producers outside India saw some respite from competitive Indian exports while the tariffs were in place, they can expect the return of competition with this news.

Pressure on Pricing Continues

While the market has seen a softening of late, the inflationary environment in which we find ourselves in 2022 is keeping prices sustained at higher levels. The figure below from the St. Louis Fed charts stainless steel prices over the past five years.¹⁵

Footnotes

¹ (2022, March 1 and 2022, April 1). North American Stainless for Products Alloy Surcharge for Orders Promised for Delivery. North American Stainless. https://www.northamericanstainless.com/alloy-surcharges/

² McHugh, D. (2022, September 6). Europe is facing an energy crisis as Russia cuts gas. PBS News Hour. https://www.pbs.org/newshour/world/europe-is-facing-an-energy-crisis-as-russia-cuts-gas-heres-why

³ (2022, December 12). EU Natural Gas. Trading Economics. https://tradingeconomics.com/commodity/eu-natural-gas

⁴ (9 November 2022). The rise and fall of European gas prices. MEPS International Ltd. https://mepsinternational.com/gb/en/news/the-rise-and-fall-of-european-gas-prices

⁵ (16 November 2022). Leeds stainless steel firm staff get thermals as heating is reduced. https://www.bbc.com/news/uk-england-leeds-63650900.

⁶ (12 December 2022). Henry Hub Natural Gas Spot Prices. U.S. Energy Information Administration. https://www.eia.gov/dnav/ng/hist/rngwhhdW.htm.

⁷ (1 November 2022). Stainless Steel Raw Material Surcharges for Orders Promised for Shipments October 30, 2022 through December 3, 2022. Cleveland Cliffs. https://d1io3yog0oux5.cloudfront.net/clevelandcliffs/files/pages/clevelandcliffs/db/1185/description/2022-11-Surch-SS.pdf

⁸ (6 December 2022). Short-Term Energy Outlook. U.S. Energy Information Administration. https://www.eia.gov/outlooks/steo/

⁹ (20 October 2022). Global stainless steel consumption changes. worldstainless. https://www.worldstainless.org/news/global-stainless-steel-consumption-changes/

¹⁰ (20 October 2022). Global stainless steel consumption changes. worldstainless. https://www.worldstainless.org/news/global-stainless-steel-consumption-changes/

¹¹ (25 January 2022). December 2021 crude steel production and 2021 global crude steel production totals. worldsteel association. https://worldsteel.org/media-centre/press-releases/2022/december-2021-crude-steel-production-and-2021-global-totals/

¹² Stainless steel meltshop production. worldstainless. https://www.worldstainless.org/statistics/stainless-steel-meltshop-production/stainless-steel-meltshop-production-2015-2021/

¹³ (20 October 2022). Global stainless steel consumption changes. worldstainless. https://www.worldstainless.org/news/global-stainless-steel-consumption-changes/

¹⁴ Jauhari, U. (17 November 2022). Pricing Challenges Likely to Persist for Steelmakers in Q3. mint. https://www.livemint.com/market/commodities/pricing-challenges-likely-to-persist-for-steelmakers-in-q3-11668626543717.html.

¹⁵ (12 December 2022). Producer Price Index by Commodity: Metals and Metal Products: Steel Wire, Stainless Steel. U.S. Bureau of Labor Statistics. Retrieved from FRED, Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/series/WPU10170502.

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With these regular updates, we seek to paint a clearer picture of the myriad factors impacting supply and demand within the metal market, for stainless steel and special alloys especially, which–ultimately–affect the price and availability of our products. 

In this edition, we review recent economic indicators that support concerns around an impending recession while also looking at one sector that’s bucking the trend of slowing growth: aerospace. 

A requirement in the production of stainless steel and special alloys–as well as aircrafts by extension–is nickel. We then outline the relationship between these two industries to better explain the anxieties around future supply. 

Central Banks Aim to Curb Inflation

The news is full of headlines about inflation and predictions about the U.S. Federal Reserve’s policy response. After its meeting in late July, the Fed announced it will lift interest rates by another 75 basis points in an effort to curb inflation. During the press conference Chairman Jerome Powell noted that future rate hikes of a similar magnitude are likely.

Central banks around the world are taking similar action. The European Central Bank raised its three interest rates in July, ending an era of negative rates. It was the first increase in 11 years. The Bank of Canada raised its rates earlier in the month as well, increasing the overnight rate a full percentage point to 2.5%. 

July Manufacturing PMIs

Rate hikes to tame inflation support sentiments that a recession is looming. Orders have slowed and inventories are growing, according to The Institute for Supply Management. Findings from its July Manufacturing ISM® Report on Business® showed continued expansion in the U.S. manufacturing sector, but at a slower rate than in previous months. The Manufacturing PMI fell to 52.8% from 53.0% in June.¹ 

A slowdown is being felt on the other side of the world as well. Driven by criticism to curb its carbon emissions and catalyzed by continuing pandemic-related shutdowns and the ensuing softening of demand, production in China has slowed. The country’s official manufacturing purchasing managers’ index (PMI) similarly fell in July, to 49.0% from 50.2% in June.² The 50-point mark divides growth from contraction. 

Aerospace Bucks Slowing Growth Trend

While negative sentiment may reign this week, there are signs of accelerating growth in some sectors. Aerospace supply chains are returning, adding to the demand for stainless steel and, more so, for certain nickel alloys. 

Aircraft manufacturers are projecting a full recovery by 2024 but orders are coming in now. Most recently, in July, news that Delta placed an order with Boeing for one hundred 737 Max 10 planes, with options for 30 more made headlines. Deliveries to the Atlanta-based Delta are not expected to be complete until 2025. 

Nickel alloys, such as Hastelloy C-276, are used in hot section components like exhaust systems, bleed air systems, heat shields, fasteners, honeycomb seals, and hydraulic lines. Stainless steel Types 304, 316 and 321 are commonly used for fuel tanks.

Nickel Alloy Suppliers See Increased Profitability 

The spike in demand amid an inflationary environment has allowed nickel alloy producers an opportunity to increase profitability, helping to offset losses suffered during the pandemic. 

One Haynes International executive reported off the back of stellar third quarter earnings that aerospace orders have rebounded to 95% of pre-pandemic levels. The company, a producer of high-performance alloys, saw top line revenue come in at $130.2 million, a jump of 47.7% over the same period last year.³ Gross margin, operating income and net income all saw similarly impressive results. 

Demand from aerospace is unlikely to meaningfully impact stainless steel supply, but the same cannot be said for the exotics. Production capacity constraints continue to plague supply chains and re-roll mills are encouraging customers to buy early and often. 

Nickel: A Key Alloying Element

One of the biggest drivers of stainless steel and nickel alloy prices is the cost of nickel. It is a key alloying element in the 300 series stainless steels, giving them their austenitic structure, and thereby making them easier to work with and suitable for a diverse range of applications. Thanks to nickel, these alloys have good formability and can be easily shaped into many products, from a corrugated hose to an orthopedic implant. 

Nickel also improves weldability and toughness. While other metals (including non-austenitic stainless steels) become brittle and fracture at low temperatures, 300 series steels do not and as a result, are used in cryogenic applications. Nickel also improves strength at elevated temperatures. 

For the austenitic stainless steels, nickel content ranges from 8% – 14% of total composition, with Type 304 seeing nickel content range from 8% – 10.5% while Types 316/316L alloys see nickel content range from 10% – 14%.⁴ There is no substitute for nickel in the production of these stainless and other alloy steels. 

Annual Nickel Production and Reserves

Stainless steel prices and, ultimately, its long term availability are closely tied to the nickel market given the production requirements. 

While nickel is a relatively common element, annual production is quite small compared to other extractable resources. Two-point-seven million tons of nickel were produced in 2021 while–as a point of comparison–68 million tons of aluminum were produced.⁵ 

Production trends often echo the situation with reserves, or the amount that can ultimately be extracted through mining. Known reserves of bauxite ore, the primary source of aluminum, are estimated to be between 55 billion and 75 billion tons and far outweigh known reserves of nickel, which are estimated at 300 million tons.⁶

To note, it is widely accepted that extensive nickel deposits lay beneath the ocean floor but mining technology has not yet evolved to a point where extraction is efficient–or even possible. These potential reserves are not included in the tally above. 

Competition for Nickel Production

The stainless steel industry is the largest consumer of nickel each year, accounting for 69% of annual production. Another 7% is used to make non-ferrous alloys, and a further 3% to make alloy steels.⁷

But there is a new game in town whose growing presence is putting pressure on the stainless steel industry and its consumers–electric vehicles. Certain electric vehicle (EV) batteries, including the most widely used lithium-ion batteries, require nickel. Currently EV battery manufacturers consume 11% of world nickel production annually, but as the push for e-mobility and carbon neutrality escalates, these manufacturers will be demanding bigger and bigger slices of the pie. 

Estimates for the future of electric vehicles are enthusiastic. The International Energy Agency expects EV sales to reach 20% of all car sales in 2030, increasing stock 11-fold from today’s levels to 200 million vehicles.⁸ This projection depends on the production of 180 million EV batteries over the next eight years. 

Unless production levels increase, nickel could be a limiting factor to the industry’s growth. In such a scenario, stainless steel and nickel alloy consumers could also expect to pay more. 

U.S. Geological Survey Adds Nickel to Critical Minerals List

The rise of EVs, resurgence of resource nationalism, price volatility and concerns over access are pushing some of the world’s largest economies to shore up supply chains of critical resources.

Albeit a bureaucratic gesture, the USGS added nickel to its List of Critical Minerals earlier this year, a designation given to minerals essential to the economic or national security of the United States which have a supply chain vulnerable to disruption.⁹  

Of the 50 minerals on the list, 23 are used in steelmaking processes underscoring just how important the industry is to the nation’s security. Eight of the minerals are used in the production of rechargeable batteries, an indication of the commitment to and focus on advancing technologies that will diversify our energy mix and reduce carbon emissions.  

Along with cobalt, lanthanum, manganese, and praseodymium, nickel is one of the few minerals required to support both industries. Its addition to the list just this year suggests concerns that supply may not be able to keep pace with increasing demand.

Footnotes

¹ Institute for Supply Management®. (2022, August 1) Manufacturing PMI® at 52.8% July 2022 Manufacturing ISM® Report On Business®. Retrieved August 3, 2022 from https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/july/. 

² National Bureau of Statistics of China (2022, August 2) Purchasing Managers Index for July 2022. Retrieved August 3, 2022 from http://www.stats.gov.cn/english/PressRelease/202208/t20220802_1886994.html.

³ Haynes International. Haynes International, Inc. Reports Strong Third Quarter Fiscal 2022 Financial Results. Retrieved August 3, 2022 from https://haynesintl.com/docs/default-source/investor-relations/2022/haynes-earnings-press-release–3rd-q-.pdf

⁴ Penflex. (2021, June 29) Differences Between the 300 Series Stainless Steels. Retrieved July 28, 2022 from https://www.penflex.com/differences-between-300-series-stainless-steels/.  

⁵ U.S. Geological Survey. Mineral Commodity Summaries 2022. Retrieved July 28, 2022 from https://pubs.usgs.gov/periodicals/mcs2022/mcs2022-nickel.pdf

⁶ U.S. Geological Survey. Mineral Commodity Summaries 2022. Retrieved July 28, 2022 from https://pubs.usgs.gov/periodicals/mcs2022/mcs2022-nickel.pdf

⁷ Nickel Institute. About Nickel. Retrieved July 28, 20222 from https://nickelinstitute.org/en/about-nickel-and-its-applications/#02-nickel-availability

⁸ IEA (2022), Global EV Outlook 2022. Retrieved August 3, 2022 from https://www.iea.org/reports/global-ev-outlook-2022/executive-summary

⁹ U.S. Geological Survey. (2022, February 22) U.S. Geological Survey Releases 2022 List of Critical Minerals. Retrieved July 29, 2022 from https://www.usgs.gov/news/national-news-release/us-geological-survey-releases-2022-list-critical-minerals

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