Jul 05, 2023
Steel prices are expected to rise

Steel prices are expected to rise

Steel futures prices continued their upward trend, supported by ongoing production restrictions in Tangshan, China’s leading steelmaking centre. According to reports, Tangshan has asked 11 A-rated steel mills to proactively reduce production, while B-rated and lower-rated mills will have to shut down 50% of their sintering facilities from 1-31 July due to deteriorating air quality. In addition, several Chinese steel producers have announced maintenance plans for July, following similar patterns in previous months.

These actions contribute to the latest expectations of Asian analysts of reduced supply in the steel market, thereby supporting steel prices. Steel benchmarks for rebar rose by 0.78%, hot-rolled coil by 0.89% and wire rod by 0.45% on the Shanghai Futures Exchange (SHFE).

Competition between high grade nickel vs. low grade nickel is increasing

The competition between the different nickel grades is expected to pick up speed soon. As already announced in early June 2023, Indonesia has a growing problem with the availability of low grade nickel ore and intends to limit the production of e.g. nickel pig iron in order to save the valuable raw materials for higher grade products.

Indonesia needs more raw materials for grade 1 nickel

According to media reports, production capacities of about 200,000 MT of Class 1 nickel should be completed in Indonesia by the end of 2024. Which also explains why there needs to be a shift of raw materials between different producers.

Electromobility needs nickel

On the one hand, this could lead to a relief in the strongly growing market for electromobility, which had recently reduced inventories on the commodity exchanges significantly and partly dropped to historic lows. On the other hand, however, this will reduce the supply of nickel pig iron, which is used in the production of stainless steel.

China plans to use more than 8.3 million tonnes of stainless steel scrap by the end of 2025

At the same time, China plans to increase the share of scrap in stainless steel production from the current 21% to 26% by the end of 2025 – an increase of almost 1.6 million tonnes of stainless steel scrap per year. This will significantly reduce the availability of nickel-bearing scrap and cause prices to rise worldwide.

Competition between high grade, low grade and scrap will therefore increase in the future. What could possibly lead to relief in the EV sector, however, is likely to lead to higher raw material costs in the stainless steel sector – because NPI will become scarcer and scrap will be in greater demand.

Indonesia has become the world’s sixth largest emitter of CO2 from fossil fuels

Even though Indonesia has emerged as the largest producer of nickel products, it comes at a high price. According to recent reports, Indonesia has become the world’s sixth largest emitter of CO2 from fossil fuels in 2022. And there is no end in sight to the burning of coal in the Asian country.

Indonesian Class 1 nickel needs a lot of energy

This poses problems for Indonesia in terms of nickel production. This is because the nickel-bearing laterite ore, which is mainly found in Indonesia, needs much more energy to be converted into class 1 nickel. This means that CO2 emissions are up to six times higher than in Canada, Russia or Australia, for example, where mainly nickel-bearing sulphide ore is mined and processed.

WTO, IMF, EU: Indonesia has to put up with a lot of criticism

Indonesia recently had to put up with a lot of criticism from the World Trade Organisation (WTO) and the International Monetary Fund (IMF) about the export bans imposed or planned by Indonesia on raw materials (e.g. nickel or bauxite). With the new EU regulations on deforestation-free products, another construction site for the Indonesian economy had already opened up in May 2023.

The excessive use of fossil fuels in Indonesia’s energy mix is now likely to raise further criticism with regard to e.g. the EU Carbon Border Tax CBAM and CO2 certificate trading in Indonesia. And raise the legitimate question: When will Indonesia get a grip on this?