WORLD AVERAGE STAINLESS STEEL PRICES - LATEST FORECASTS FROM MEPS

In the short term we forecast stainless steel prices moving even higher, due to further nickel price rises on the LME during December. This gain will impact on transaction values into the second quarter of 2007. March should be the highest month with cold rolled 304 transaction figures reaching almost $US4,900 per tonne and grade 316 figures topping $US7,300 per tonne. In the longer term, we expect stainless selling values to decline as nickel prices reduce and the US economic slowdown begins to take its toll on stainless consumption in the US, which will affect exports into the region from Asia and the EU. There is a levelling out from across the regions as the US peaks in February, EU in March and Asia in March/April.

The US dollar is in decline, and has caused the price of nickel, which is traded in dollars, to increase further than we anticipated in our last forecast. Moreover new nickel projects due to come on stream in 2007 have now been delayed until 2008. Furthermore the El Niño weather pattern led to reduced power supply at Indonesian mills and this has affected production. All this has caused nickel prices to reach new record highs during December. Stocks are still at critically low levels, with the general strike in New Caledonia still ongoing and no end is currently in site. Eramet is reported to have lost around 50 tonnes per day since the strike began back in September. Consequently, nickel price volatility may continue in the near term. There are also further threats looming as Xstrata begin new labour negotiations with the Local 598 union at the Sudbury mill in Ontario. Historically these have not gone to plan and strikes have inevitably ensued. Although the latest reports are that both sides are optimistic about the outcome. The current contract expires on the 1st February 2007.

We are anticipating the nickel supply shortage to continue into 2007. However, stainless demand may begin to drop off in the new calendar year. This in turn will mean less demand for nickel and we should see stocks increase. Our annual nickel forecast is around 7.3% above the consensus figure from other analysts made during the final quarter of 2006

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