NEW ALLOY SURCHARGES WILL NOT STABILISE EU STAINLESS STEEL PRICES

The new and proposed alloy surcharge mechanisms in the EU will not stabilise transaction prices in the market. On the contrary, they could lead to more volatility. If steel buyers accept the principle of the new system they would be creating difficulties in quoting for new orders - with the prospect of losing out to foreign competitors.

Granted, the old system was not good for the mills when alloy prices started to fall. However, it was beneficial to them on the upside. At least, the customers had some idea of the alloy surcharge at the time of their delivery by referring to the MEPS estimates. These could be calculated with a strong degree of accuracy even in the highly volatile period because the make up of the figures contained a proportion of historical alloy costs.

Under the new proposals, alloy costs used to calculate the surcharges would be based, mainly, on the average figures in the month prior to delivery of the finished products. The current US system uses the mean value one month earlier than the EU proposition. This did not stabilise transaction values in that market. In fact, US selling figures were more volatile than those in the EU when using the old surcharge mechanism which is now said to be unsatisfactory.

The US system created alloy surcharge hikes for type 304 cold rolled of $US1200 per tonne in the period April to July 2007 and $US950 between January and April of that year. This is hardly a good advertisement for shortening the period of application of the alloy costs when the equivalent figures in the EU were around $US1000 and $US530, respectively.

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

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