STAINLESS STEEL MARKET BECALMED AS LOWER PRICES ANTICIPATED

Seasonal effects on demand have combined with a fall in nickel prices to bring about a lull in stainless steel sales. Customers are attempting to control their inventories around the period of subdued activity. The forward visibility of lower alloy surcharges, where applicable, has exacerbated the situation.

Customers in Europe had the confidence to buy material while values were rising, in the early part of this year. Now, though, many have enough steel in stock to last until their summer stoppages. Buyers were able to minimise purchases in June as they could anticipate a significantly lower alloy extra for July. Indeed, some are predicting a further drop in surcharges for August.

European producers had hoped that basis values would continue to rise until the summer break. However, as demand has slowed, these prices have been stuck at the same level for three months in much of the continent and have even started to fall in the south.

The situation is even more pronounced in the US, where surcharges are calculated over a longer reference period and applied farther ahead. Surcharge figures there peaked in June but sales volumes plummeted immediately at the beginning of the month as buyers were already aware that stainless transaction values would be lower in July. Producers and distributors were forced to move, in effect, to the July surcharge less than halfway through June in order to revitalise sales activity. A similar case is likely to arise next month.

A number of figures involved in the stainless steel supply chain would like to see and end to the alloy surcharge system. This could involve producers and distributors hedging their alloy exposure in order to protect their customers from fluctuations in the commodity markets. Alternatively, raw material suppliers and steelmakers could agree longer term, fixed price contracts. As well as bringing more stability to transaction values, this would go some way to smoothing out the stop-start buying patterns caused by the visibility of upcoming price changes.

Delivery leadtimes for some items, notably long products in Europe, have lengthened as the mills have tried to maintain output at levels appropriate to real demand. It has been reported that the Spanish stainless steel producer, Acerinox, will operate at full capacity until the end of July. Not all sectors are showing strong demand, though, and many observers predict weaker consumption in the second half of 2010. We anticipate, therefore, that production will be cut back again.

Purchasing activity in the Far East has slowed as a result of expected price slippage and inventory control. The mills there, too, are now reducing output, albeit from levels far closer to their full capabilities.

Source: MEPS - Stainless Steel Review - click here for a free sample copy.

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