Nickel Surplus Pressures Stainless Steel Prices Despite U.S. Tariffs
The stainless steel market continues to struggle despite recent price support from U.S. tariffs on nickel, as a surplus of nickel and weak demand weigh heavily on the industry. Prices for nickel showed only a modest increase of 0.32% from July to August 2023, yet the overall trend remains downward. Financial reports from various suppliers highlight the challenges faced by U.S. service centers, which have not benefited as much as mills from the tariff protections.
Financial data from Acerinox revealed a 10% increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) from the first to the second quarter of 2023. This improvement is largely attributed to the support provided by U.S. tariffs, which have insulated the company from competitive pressures in the global market. However, the firm’s management noted the “poor performance of the European market,” contrasting with a stable order book in the United States.
In stark contrast, Outokumpu reported a significant 17% decrease in EBITDA during the same period, reflecting challenging conditions in Europe. The company cited ongoing issues such as subdued demand, low-priced imports from Asia, and high energy costs. In response, Outokumpu has called for increased protective measures, specifically through the Carbon Border Adjustment Mechanism, to bolster the European stainless steel industry, especially as U.S. tariffs have redirected stainless steel trade flows.
Despite these pressures, the U.S. domestic market is experiencing some growth. Outokumpu noted a 7% increase in stainless deliveries in the U.S., which the company attributed to higher demand for domestically produced materials. Conversely, while Acerinox has expanded its capacity at North American Stainless, its global output fell by 2.34% quarter over quarter.
Looking ahead, Outokumpu’s outlook for the third quarter is less optimistic, with expectations of a 5% to 15% drop in group deliveries compared to the second quarter, driven primarily by seasonal factors and market weaknesses in Europe. Reports indicate that despite efforts by U.S. manufacturers to nearshore supply chains, there are currently no signs of demand recovery.
U.S. service centers are experiencing a starkly different reality from mills. Ryerson, for instance, reported a 2% decline in average selling prices for stainless steel from the previous quarter, indicating that the company may have had to offer discounts to shift inventory. This has impacted profit margins, as stainless steel shipments also saw a 1.6% decline during the same period, suggesting that buyers are remaining cautious.
Similarly, Reliance reported a 0.7% decrease in stainless steel tonnage sold and a 2.8% drop in overall sales. Like Ryerson, Reliance experienced pressure from falling stainless steel prices, although the company remains hopeful that prices may rebound in the third quarter due to recent base price increases from mills. Yet, service centers across the U.S. have reported continued softness in buying activity through July.
Tariffs have allowed U.S. mills to increase capacity, leading to tighter conditions for ferritic stainless grades, as producers prioritize more common grades like 304. Despite recent mill price hikes holding stable, the overall demand remains weak. Cold-rolled stainless steel imports into the U.S. have also significantly slowed in 2023 compared to the previous year, allowing domestic mills to capture more market share.
Currently, steel tariffs remain set at 50%. However, ongoing trade discussions with countries like the UK and EU may lead to quota agreements in the near future. On August 15, 2023, President Donald Trump hinted at the possibility of new tariffs on steel and semiconductors, announcing, “I’ll be setting tariffs next week and the week after.” While specifics on the rates were not disclosed, he mentioned a gradual implementation approach.
While higher tariffs may be part of a strategy to support domestic metal producers, the current manufacturing landscape remains fragile. An increase in tariffs could lead to demand destruction rather than growth, particularly as companies are already facing squeezed margins while attempting to pass on costs from existing tariffs to consumers.
As nickel prices have remained relatively stable in recent months, the overall multi-year trend points downward, compounded by exceptionally high nickel stocks. Indonesia continues to be a leading producer, with nickel coal as its primary export. However, domestic demand for nickel in Indonesia has peaked, leading some smelters to reduce output amid falling prices.
In summary, while U.S. tariffs have provided some relief to stainless steel mills, the ongoing nickel surplus, coupled with weak demand and competitive pressures, paints a challenging picture for the industry moving forward. Without significant changes in market dynamics, including increased demand or reduced global supply, the outlook for stainless steel pricing remains uncertain.
