Summer holidays in the
northern hemisphere, high stocks and the weakening of raw material
prices are combining to send stainless steel markets into the
doldrums. Many producers have announced output cuts in an effort to
bring the market back into balance. This has been made necessary by
the excessive rate of production since mid 2004.
The resulting over-supply has caused falls
in stainless prices. Mills have therefore been trying to steady the
market by announcing cutbacks in production. In Europe, ThyssenKrupp
Stainless, Ugine & ALZ and Outokumpu have each said they are
reducing output – though in the case of the Finnish company it is
not clear to what extent cuts at its Swedish works will be offset by
the ramp-up of its new melting shop at Tornio in Finland.
In Asia likewise, stainless mills in
Taiwan, Korea and Japan are reducing their operating rates, citing
the need to bring down stock levels. Even Chinese cold rolled
stainless producers are reining back their production.
So far these cuts have not had much effect
on prices and neither are developments in the all-important alloy
costs helping the mills to fill their order books. The average LME
settlement price for nickel in June was $US16,159 per tonne – down
by about 5 percent from May. Barring an upsurge in the last few days
of July, the average price is certain to be much lower than this,
because nickel has been trading at less than $US15,000 per tonne for
most of the month. In addition, ferro-chrome is being sold in the
third quarter at around 78 UScents per pound - down from 83-84
UScents in period two.
These lower prices for alloys, together
with declining costs of unalloyed scrap, will result in falling
surcharges for stainless buyers. In North America, some of these
reductions are already showing through in surcharges for August,
which for type 304 are down by about 9 percent from July. The
further cost decreases will result in markedly reduced surcharges
from September and will spread to Europe too.