Nickel prices and the effect on Stainless Steel prices

  • Tuesday, September 09, 2014
  • Source:ferro-alloys.com

  • Keywords:nickel market, stainless steel
[Fellow]The health of the worldwide nickel market is heavily dependent upon stainless steel production. The pricing of stainless steel is also dependent on the market prices of worldwide nickel. Two-thirds of all nickel mined and produced in the world will make its wa...

The health of the worldwide nickel market is heavily dependent upon stainless steel production. The pricing of stainless steel is also dependent on the market prices of worldwide nickel. Two-thirds of all nickel mined and produced in the world will make its way into stainless steel.  

Disovered in 1751, nickel held very little value to industry until Michael Faraday, in 1820, discovered that adding nickel, strengthened iron. Later development would produce nickel steel in 1885, which tests sponsored by the U.S. military, showed made superior weaponry. This use has made nickel a critical commodity in time of warfare. Nickel and cobalt are used today in the production of superalloys used in jet aircraft and missiles, among mumerous other military uses.

Traditionally, warfare in the 20th century has increased demand and caused spikes in nickel prices. During the Korean conflict, US plants could not produce enough nickel to keep up with wartime needs. The government was forced to take control of over all U.S. production and until 1957, it controlled production and nickel inventory stocks in the US. The governement relinguished control over nickel four years after the cease fire was signed only after building a national strategic stockpile. By the beginning of US involvement in the Vietnam conflict, Canadian producers, Inco and Falconbridge accounted for 48% of world nickel production. Canadian labor strikes in 1969 decreased Canadian production just as wartime needs for nickel increased. As new mines and processing plants came online in countries such as Australia, New Caledonia, and the Dominican Republic, Canadian producers would lose their world domination and diminish their ability to set nickel pricing.

Prices would gradually increase over the next decade as demand for nickel increased. Once again a labor stirke at Inco would cause a serious jump in prices in 1978 and in 1979 nickel became the seventh metal to be traded on the London Metal Exchange. Nickel prices would now be set by worldwide supply and demand. After increasing in price by 33% in two years, the ending of the Inco strike would bring about a surplus of nickel and prices would free fall to near pre-strike levels and continue to slide until 1987. 1986 ended with pricing as low as it had been in years selling for $1.60 per pound. Many world producers of nickel had discontinued production and the stage was set for  the industry to be caught off guard. Stainless steel usage in 1987 increased dramatically and demand exceeded supply. The Dominican Republic government levied a huge duty on exported nickel, which forced Falconbridge, who maintained the Dominican mines, to cancel shipments. By April of 1988, nickel prices had soared to an all time high of $8.17 per pound.

While nickel demand remained strong, producers were finally able to catch up and nearly as quickly as prices had sky rocketed, they free falled. The decrease in price continued when in 1991 the fall of the Soviet Union meant a new and powerful player would add more nickel producing capacity to the world stage. Norilsk Nickel, the world's largest producer of nickel, would begin to export heavily as demand in the former military government crumbled. This would further depress prices except for a slight surge in 1995 when an explosion and fire at a power plant would temporarily cripple Norilsk's ability to produce and ship nickel, while at the same time a major earthquake in Japan would increase the demand in stainless for reconstruction. A depressed Far East economy would drive prices back down as stainless demand fell.

Once again a rebound in stainless steel in 1999 would catch nickel producers off guard. Inco sufered another shut down due to a strike and was too strapped for cash to re-open closed mines. Canadian Falconbridge, the worlds third largest producer suffered smelter problems and Australian producer, WMC (Western Mining Corp), had to shut down for two months. Norilsk was unable to ship nickel as the annual Arctic freeze lasted longer than usual. Once again, with demand exceeding supply, prices increased until production caught up in 2000 and prices peaked. 2001 saw prices fall but a strike at Inco once again brought them back up in 2003.

While stainless is primarily made of chromium, nickel is less abundant and far more volatile. Generally speaking, history has shown the pricing of stainless closely follows the cost of nickel. This is due in part to the fact that while nickel may make up a small percentage of stainless in mass (8% in 304), it contributes upwards of 60% of the cost. With the United States currently not mining any nickel or ferrochrome, and the U.S. Defense Logistical Agency selling off its stategic stockpile of nickel in 1999, the United States is now 100% dependent on foreign imports and scrap for these two key ingredients of stainless steel. Stay tuned.

  • [Editor:sunzhichao]

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