Next month could see a notable landmark in the development of stainless steel pricing. The alloy surcharge is already close to parity with the basis price in the US for type 304 hot rolled strip. In fact, the March surcharge may even exceed the basis figure. It is heading the same way in Europe but will not achieve equilibrium unless nickel and chrome prices go up substantially.

Our estimate for March is that the US average alloy surcharge could reach $US1,214 per tonne for type 304 flat products. It will have more than doubled since October 2003. US buyers of grade 304 hot rolled coil are likely to be paying a total price of $US 2,354 per tonne next month. The alloy surcharge element will equate to almost 52 percent of the total transaction price. Since the start of 2002, the alloy surcharge has risen from $US64 to $US1,214 and has accounted for almost all the increase in the cost of stainless to the end-user over that time. The basis price has gone up by just $US 90 per tonne (9 percent) over the same period.

When the actual price of stainless is twice as much as the basis figure, it is clear that real market demand is not the chief driver of selling values. As with the turmoil in the wider steel industry, it is raw material costs and availability that are leading the way.

Nickel and chrome prices are forecast to remain firm because production is failing to keep pace with rising world demand. The surcharge will stay high, limiting opportunities for increased basis values.

Source: MEPS - Stainless Steel Review