NORTH AMERICAN AVERAGE STAINLESS STEEL PRICES - LATEST FORECASTS FROM MEPS

In the short term we forecast stainless steel prices moving even higher - due mainly to an unprecedented hike in the price of nickel on the LME during October. This gain will impact on alloy surcharges in December and January. Moreover, basis values are also likely to rise until the end of the year - pushing selling prices to their highest ever recorded figures.

We still believe that the year end will be the peak of the current cycle, as we stated last month. In the longer term, we expect stainless selling values to decline. The LME 15 month buy price for nickel in the last few days of October was hovering around $US24,000 per tonne. This compares with a daily cash price of over $US34,000 on several occasions during October and a figure of around $US32,000 in recent days. In fact, the October average nickel price will be almost $US2,000 higher than the August record high. This was due largely to a general strike in New Caledonia which paralysed French nickel producer Eramet.

We are now anticipating the monthly average nickel cash price declining to near $US24,000 in mid 2007. We also predict stainless basis agreements being at a reduced level. This would bring our forecast for grade 304 cold rolled coil in October 2007 to approximately $US560 below the current levels and $US790 below the anticipated high point in December this year. However, with the transaction price for austenitic grades being heavily dependent upon the price of nickel on the LME, predicting stainless steel selling prices is becoming increasingly demanding. This, coupled with the fact that it has not been unusual for daily nickel prices to fluctuate in excess of $US1,000 per tonne, makes it difficult to get an accurate nickel forecast. There are widely differing views from analysts on the price of nickel going forward.

The improved availability of nickel next year should lead to a softening of nickel prices, but we won't see them returning to levels seen at the beginning of 2006. Nickel inventories with the LME have been at an all time low this month, representing just 2 days worth of global consumption, having plummeted more than 87 percent since the beginning of this year. Mine strikes have crippled the nickel market and our forecasts are assuming that these recent problems have now come to an end.

Over the past six months stainless steel demand on the mills has been significantly higher than real consumption. Production in 2006 is forecast to increase by more than 9% over 2005 which will begin to have an affect shortly and aid mills in satisfying the order back log.

Source: MEPS - STEEL PRICES ON-LINE (regional steel price tables & forecasts)