Substitution In Stainless Sector Adversely Affecting Nickel Demand

The high and volatile prices of the alloy metals that go into stainless steel are causing massive problems for both producers and consumers. Nickel of course is the chief culprit; its price during last year ranged from a peak of almost $US18,000 per tonne to a low of around $US10,500 per tonne.

The high cost of nickel-bearing stainless is prompting users to consider alternatives and, in some cases, to switch to other – cheaper – materials. Anecdotal evidence of a significant change in stainless consumption patterns has now been confirmed by statistics from the Japan Stainless Steel Association.

Japanese domestic demand for stainless flat products in 2004 rose by 5.8 percent to 1.28million tonnes. Add in export sales, and the mills’ total order intake reached 1.72million tonnes – the highest for a decade. However, the JSSA figures show that orders for nickel-bearing 300 series products decreased by 4.4 percent, while those for nickel-free 400 series jumped by almost 21 percent year-on-year.

China has also been using much larger volumes of low-nickel 200 series products to substitute more expensive 300 grades; although there now has been some retracing of steps. European stainless mills have also reported end-users switching to lower-cost nickel-free or low-nickel specifications. Some customers may have quit stainless entirely.

The reduction in Japanese sales of 300 series stainless last year represents a loss of about 3,900 tonnes of nickel consumption. Japan accounts for roughly 10 percent of total stainless demand. If this pattern were repeated worldwide, then global nickel consumption would be quite significantly reduced.

Recently, the LME price of nickel exceeded $US16,000 per tonne for the first time in five months. Many industry analysts expect demand to exceed availability this year. However, if nickel-free stainless continues to take market share away from 300 series, things may change. On the supply side new projects, such as Voisey’s Bay in Canada, and Goro and Koniambo in New Caledonia, are now limbering up.

Stainless producers say they think a “reasonable” level for nickel would be $US10,000/11,000 per tonne in the medium term. Under the impact of increasing substitution and growing supply, this may become a reality sooner than many had expected.

Source: MEPS - Stainless Steel Review

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