LME WEEK 2016: Stainless scrap discounts buck seasonal trends as nickel price firms

Discounts available on nickel units in stainless steel scrap have maintained levels around their summer highs into the fourth quarter, as improved availability has met lacklustre demand.

Discounts of 18-20% have been available in October, similar to levels available in August, according to market participants.

Nickel scrap discounts typically tighten in the fourth quarter as demand returns after the European summer, but a combination of weak demand and better scrap availability has kept discounts wide into October, market sources said.

The discounts mean nickel units in stainless steel scrap are changing hands at 80-82% of the London Metal Exchange’s nickel price.

The bourse’s three-month nickel price settled at $10,320 per tonne in official trading on October 27, compared with lows of $7,750 in February this year.

“Nickel at $10,000 per tonne makes sure more is offered,” a trader told Metal Bulletin.

Nickel units in stainless steel scrap showed tight availability in the first half of the year as low reference prices proved unappealing to scrap sellers.

The tightness in Europe prompted steel mills to turn to primary nickel in the form of briquettes, helping to drive premiums for LME-deliverable material to 18-months highs in the second quarter.

But the modest recovery in nickel prices over the summer has relieved the scrap tightness experienced in the first half.

“Some scrap has come out of the corners [now prices are higher]; there’s no shortage,” a second trader added.

Discounts of about 18-20% compare with discounts of around 10% ahead of LME Week in 2015, meaning nickel units in stainless scrap were trading at around 90% of the LME nickel price.

The LME’s three-month nickel contract settled at $10,525 per tonne on October 27 2015.

In an interview with Metal Bulletin last year, Outokumpu’s Frank Ehrenberg warned discounts would have to widen in order to make scrap units competitive.

And as market participants prepare to gather for 2016’s LME Week, for scrap discounts “it all depends on how the underlying price develops”, a third trader added.

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