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Ag Metal Miner

Ag Metal Miner

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Economic Worries Weigh On Nickel Prices

  • The Stainless Monthly Metals Index (MMI) dropped 4.68% from February to March.
  • South Africa’s electricity generation is threatened by poor maintenance, unplanned outages, lack of renewable energy investment, and corruption.
  • The new nickel trading platform GCH offers an opportunity for stability to lessen the volatility of nickel prices.

Via AG Metal Miner

The Stainless Monthly Metals Index (MMI) dropped 4.68% from February to March. Meanwhile, the price of Nickel also fell significantly.

Stainless Spot Pricing for Buyers

U.S. cold rolled stainless steel import licenses remain depressed. Indeed, many importers appear apprehensive, as it remains too risky to bring in materials due to recessionary concerns. Meanwhile, the U.S. cold-rolled market needs some imports, as U.S. flat-rolled production will not be sufficient to meet demand. Some items, such as light gauges or ferritics, could be in short supply if not backfilled with imports.

Will South Africa’s Energy Crisis Impact Stainless Steel Markets?

Since 2007, South Africa has had to engage in a practice called load shedding. This refers to the deliberate shutdown of power supply to certain areas. The duration of the shutdowns vary widely, but generally stems from insufficient electricity generation capacity. The reasons for the load shedding come down to:

  • Poor maintenance of coal-fired power plants, which today represent 80% of the country’s electricity source
  • Unplanned outages
  • Lack of investment in renewable energy sources
  • Corruption at the country’s primary energy company, Eskom 
  • Corruption within the ANC
  • In some cases, sabotage

Moreover, load shedding has markedly increased since 2022.  As a result, it has become largely “normalized” within the country. South Africa is the world’s largest producer of chrome and the second or largest producer of ferrochrome (depending on the source). Ferrochrome, in turn, serves as a key raw material for stainless steel. In short, the global ferrochrome supply depends upon reliable electricity generation in South Africa.

Ferrochrome from South Africa goes to several countries, but the biggest importers include China, Japan, and the United States. That said, U.S. import levels have shifted during the past few months, with some volumes moving to Kazakhstan. Regardless, further power outages (which have also caused civil unrest) will surely pressure South Africa’s ferrochrome producers.

Based on MetalMiner’s analysis, the ferrochrome producers are not sufficiently energy independent. However, some press reports indicate that the companies have committees working to find alternative energy sources. At some point, the impact of this turmoil could show up in the setting of the quarterly chrome element of stainless steel surcharges. 

Nickel Price and Market Impact

Although nickel prices have rallied during the winter of 2022, price action has shown declines into the spring season. Lower lows will confirm whether or not nickel prices will resume a downtrend. However, at this time, prices continue to trade in range. After hitting a peak in January 2023, price action will need to find bullish support and reverse to establish an upside trend. Until then, the direction of the nickel markets remains unclear.

As the LME has struggles with liquidity, a new competitor will soon enter the market. The new nickel trading platform, Global Commodities Holdings (GCH) will only be open to nickel producers and consumers. This should benefit stability and lessen the volatility of nickel prices, as no traders or funds will be involved.

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By the Metal Miner team

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