GLOBAL STAINLESS STEEL MARKET UPTURN LIKELY IN EARLY 2012

All the leading stainless steel producers in the United States have announced increases to basis values - or reduced discounts - for flat products, effective for January deliveries. European mills have either attempted, unsuccessfully, to introduce higher basis figures already or indicated that they will be seeking hikes in the new year. However, with demand very poor and raw material costs falling, customers are currently expecting lower transaction values. Producers are, in many cases, meeting these expectations in an attempt to secure sales tonnages. Distributors, meanwhile, are offering material from stock at bargain prices, to clear expensive inventory from their accounts before year-end.

So, what factors might support the producers' aspirations? Firstly, there has been a substantial drop in input costs and, therefore, alloy surcharges. The cost of nickel, most significantly, has fallen further than most observers predicted and, so far, there is no sign of a reversal in this trend. The extra for type 304 coil in Europe has fallen by more than €600 per tonne since March 2011, while in the US the surcharge for the same grade has dropped almost $US1000 since April. Both figures will slip further for December.

Secondly, there will be an influence from the supply/demand balance, at least in the short term. Customers always reduce their purchase tonnages in the approach to year-end. This has been exacerbated, this time, by the reluctance to buy in a falling market, as well as extra caution arising from the parlous state of most western economies. Moreover, the mills are operating at substantially below their maximum capacity and are likely to cut production further by taking extended breaks around the Christmas and New Year holidays.

As a result, inventory levels will be low throughout the supply chain. Regardless of underlying demand, OEMs and stockists are likely to turn up their purchasing activity in the first quarter, both to return stock levels to near normality and in anticipation of rising prices. The mills, whose own inventories will be lean, may not be in a position to deliver the increased tonnages ordered. Indeed, they may not be prepared to ramp up their output to match what they will perceive as a temporary increase in demand. Supply would then be at a lower level than apparent and possibly even real consumption. The nickel miners are likely to restrict their output sufficiently to maintain LME values above the current level. If this is the case, and assuming that the western economies do not collapse, these factors should combine to support basis price hikes in the short term.


Source: MEPS - Stainless Steel Review