EU Growing quality problems with stainless steel Stainless Espresso 1200x630 1

31 March 2023 – Quality problems at well-known Taiwanese stainless steel producers seem to be due to the use of inferior primary products. At the same time, the same problem appears to be occurring with European stainless steel producers. Is there possibly a coincidence here? And the LME has presented a list and a roadmap of upcoming and possible changes to the nickel contract. Is this now the liberation blow for the commodity exchange or just a play for time?

EU: Growing quality problems with stainless steel?

For some time now, market sources have been telling us that some Asian producers, including well-known manufacturers such as the Taiwanese stainless steel group YUSCO, are increasingly experiencing quality problems, especially with cold-rolled stainless steel coils and sheets. But European stainless steel producers are also experiencing more and more problems, especially with certain surfaces (e.g. BA finish).

Does stainless steel pre-material come from China?

According to sources familiar with the matter, one of the reasons for this at YUSCO is the use of hot-rolled stainless steel starting material of inferior quality from China. This change of strategy introduced some time ago is likely to boomerang for the stainless steel manufacturer, and not only for quality reasons.

Are European mills following the same trend?

In Europe, too, there have been increasing complaints that some mills are struggling with quality problems similar to those of the Taiwanese producers.

Quick check of import and export figures

A quick check of EU imports of hot-rolled stainless steel pre-material originating in China shows an increase in import volumes of almost 25% for 2022 alone compared to the previous year and simultaneous decreases for other origins.

EU stainless steel exports to the United States increase significantly

At the same time, EU stainless steel hot rolled exports to the United States have increased at the same rate as EU hot rolled imports from China. Also the exports of cold rolled products picked up by nearly 20%. With significantly reduced EAF production capacities of European mills due to the energy crisis in 2022.

Is there still EU quality in European stainless steel products?

Considering that the United States had made the TRQs for EU steel and stainless steel products under the Section 232 tariffs conditional on them not being made of Chinese input material, an uneasy suspicion could quickly arise as to where the quality problems in the EU come from and why these are being burdened on the European consumer.

Nickel: LME to extensively revise contract

The LME has announced a comprehensive revision of its nickel contract. This has been vehemently demanded again and again since the nickel incident last year. Even though the list of upcoming or possible changes seems long at first glance, important demands of market participants, e.g. for transparency and external control, seem to have been disregarded.

Summary of the upcoming or possible changes:

  • Shortening the waiting period for the approval of new nickel varieties (max. 3 months)
  • Permanent price caps for all metals (+-15%), and tightening the caps for copper and aluminium to +-12%.
  • Consideration of a more comprehensive nickel contract, including coarse nickel powder (EV batteries)
  • The LME contract currently accepts only solid and cut cathodes, pellets, briquettes and rounds
  • The LME will work with the Qianhai Mercantile Exchange (QME) to develop a China-based spot market for nickel sulphate and nickel matte to support trade flows in Asia
  • Intends to consider whether temporary measures to address the current low inventory levels
  • A backwardation limit and a deferred delivery mechanism should be made a permanent part of the LME rulebook
  • Proposed to introduce monthly reporting of “eligible” stocks, i.e. metal not licensed by the LME and stored in LME warehouses, and is considering daily reporting in future
  • LME will also look at ways to reduce the level of margining on LME nickel contracts, consider steps to promote liquidity on the electronic central trading venue and consider changes to the methodology of closing prices
  • Begin testing its new trading platform, LMEselect 10, among members in July and launch it in the second quarter of 2024

“When I look at the restrictions on trading margins, it already smells to me like preparation for the next cheating,” Thorsten Gerber, CEO of Gerber Group, said today.

Liberation or playing for time?

But it remains to be seen whether these proposals can be the liberating blow for the tottering LME. In any case, the pressure on the commodity exchange seems to be increasing. Moreover, some measures are not to be expected until 2024 at the earliest and until then a lot of water can still flow down the Thames.

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