INPUT COST DEFLATION NOT IMPROVING STAINLESS STEEL MILL DEMAND

Orders on the stainless mills continue to fall despite massive production cuts. Suppliers of raw materials - nickel, chromium, molybdenum and scrap - have all reduced their selling prices in an effort to stimulate the market but to no avail. This input price deflation is depressing short term demand for stainless steel. Customers are using existing stocks or purchases from distributors to cover immediate requirements as they wait for lower mill prices in the future.

Consumption in the stainless sector is, currently, substantially down on the boom conditions earlier this year. It will take several months for the excess material in the supply chain to become fully utilised and for inventory rebuilding to recommence. We expect even more savage cuts in steel output over the next few months. These will not stop further transaction price decreases over the same period. However, a modest price revival is anticipated before the spring-time in western nations if the mills maintain rigid control over supply.

Based on past experience, a nickel price revival is anticipated early in the new year. Chromium values are likely to slip further in 2009 from their peak levels last summer. Scrap costs are already quite low and should not decline significantly in the short term. However, molybdenum prices have recently collapsed, leading to a decline of in excess of $US1000 per tonne for the 316 grade.

It is clear that the steel mills are taking the correct action by cutting production. Problems could arise again later next year if a price resurgence leads to a quick return to maximum output.

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

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