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Mar 25, 2023

European nickel premiums at impasse over weak demand and tight supply

The stainless steel sector, the largest consumer of nickel globally, has been

The stainless steel sector, the largest consumer of nickel globally, has been weak in Europe for some time now, with prices under significant pressure.

Weaker end-user demand, as well as relatively high inventories, within the region have negatively affected prices.

In periods of market strength, stainless prices are often calculated using base pricing, with an additional surcharge applied depending on the grade of material.

But in light of the weaker demand, pricing has reverted back to transactional prices, with base pricing no longer factoring heavily into negotiations.

Fastmarkets assessed the stainless steel cold-rolled sheet 2mm grade 304 transaction domestic, delivered North Europe at €2,550-2,600 ($2,729-2,782) per tonne on June 2, narrowing downward by €50 per tonne from €2,550-2,650 per tonne on May 26.

This current price level represents around a 45% decrease in price level year on year.

This decline in prices is reflected in the financial earnings of some of the largest producers in the region.

For instance, Aperam reported sales figures of €1.876 million in the first quarter of 2023, down by 17% year on year. Likewise, fellow major producer Acerinox reported a 22% decline in revenue year on year for the first quarter of 2023.

"Apparent consumption of flat products during the first quarter fell 33% according to our estimation," Acerinox said in its earnings report, adding that this decline was "due to inventory correction that has continued throughout the first part of the year, with the consequent impact on European producers’ portfolios and the progressive deterioration of prices."

Despite the weaker stainless steel market conditions, refined nickel premiums have remained relatively robust.

Though premiums have come off from their record highs in 2022, they remain significantly above historic norms.

Fastmarkets assessed the nickel briquette premium, in-whs Rotterdam at $375-600 per tonne on Tuesday June 6, unchanged from the previous week.

Meanwhile in uncut cathode, premiums edged higher at the top of the range after transactions were reported at higher levels. Fastmarkets assessed the nickel uncut cathode premium, in-whs Rotterdam at $400-900 per tonne on Tuesday, widening upward by $100 per tonne from $400-800 per tonne on May 30.

European premiums have been supported by the tight supply within the region.

Though significant surpluses have been forecast in nickel, this is predominantly in Class 2 markets, with forecasts for Class 1 supply notably tighter.

"We see Class 1 markets [for nickel] close to balanced for 2023," an industry analyst told Fastmarkets.

"Though, we continue to monitor capacity from Chinese producers," the analyst added.

Fastmarkets research reflects a similar trend, forecasting a total production level of 878,000 tonnes for 2023, with demand at around 819,000 tonnes, showing a small surplus.

This tightness is reflected in the LME warehouse inventories for nickel, with on-warrant stocks in Rotterdam at just 15,264 tonnes on Tuesday, down by 32% year on year.

"Demand is not as strong as it was a year ago, but supply is still limited and tightly held," a trader in the region said.

Since the invasion of Ukraine, many major stainless producers have looked to reduce their intake of Russia-origin material, with producer Outokumpu announcing in its risk report published on May 9, that it "has been able to replace almost all its raw material supplies of Russian origin. The company does not buy any scrap or nickel of Russian origin for its operations."

But because Russia is the largest producer of Class 1 nickel globally, this has increased the apparent tightness within the Class 1 market in Europe with non-Russian units said to be tightly held.

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