Nickel drives US alloy surcharges to 2020 high in October
US stainless steel producers have raised October alloy surcharges for austenitic stainless steels. The North American Stainless 304 flat product surcharge increased to US$0.6802/lb – up 9.2 percent, month-on-month. The nickel-driven rise represents a fifth consecutive monthly upswing since reaching a low in May 2020, with the figure now at its highest level since December 2019.
A similar picture is being witnessed for molybdenum-bearing grades. The 316 surcharge climbed by 10.9 percent, month-month, to US$0.9001/lb.
Unlike, in Europe, the alloy surcharge mechanism is still applied regimentally by the US mills. Therefore, the increases will be met with little resistance from US buyers, despite stainless steel demand remaining relatively subdued.
US domestic market activity is on a modest upward trend, albeit from a low starting point. Demand from the automotive, home appliance and HVAC sectors is improving. For the past few months, stainless steel buyers have only been making purchases for their immediate needs.
However, during September, the market witnessed an element of inventory replenishment, mainly from the distributor sector, but at lower volumes than expected, as buyers remain cautious not to overstock. Competition for orders is tough and distributors are reluctant to pass on supplier price increases to customers. Consequently, resale margins are tight.
Capacity utilisation remains below pre-crisis levels
Mill depot stock levels are low, as US stainless steel producers have been keen not to let inventory build, since before the pandemic. Market participants report that supply is tightening, with surplus and secondary material hard to find and gaps are starting to appear in prime availability.
US crude stainless steel production is estimated to have fallen by approximately 20 percent in the first half of 2020, year-on-year. Output decreased significantly during the second quarter, as the spread of coronavirus disrupted operations. Although several stainless steelmaking plants are slowly ramping up capacity utilisation rates, it is doubtful that they will return to pre-pandemic levels before early next year.
Price rises incoming for 2021?
It is unlikely that the US stainless steel producers will be able to successfully implement any basis price increases, in the near term, whilst demand remains fragile. This is despite higher raw material costs, supply constraints and a lack of import competition.
However, low inventory levels in the market are likely to result in a strong uptick in purchasing activity, early in 2021. This, coupled with an anticipated recovery in end-user demand, could put significant upward pressure on US stainless steel prices, in the first half of next year.