Jaway Stainless Steel

Austenitic stainless steel price reductions are imminent

    It is inevitable that frequent, rapid and substantial changes in prices will cause irregular buying patterns. In the case of austenitic stainless steels bar, this is amplified by the volatility of the value of nickel and the influence of that element in the cost of the product. At the time of writing, the LME Nickel Cash figure has dropped by USD 4300 per tonne, or 19.7%, in the last seven weeks. Even if the LME price were to fall no further in the coming month, its contribution to European mills' surcharges for May would be approximately the same as it was in January. The alloy extra for type 304 stainless steel could then have risen by more than EUR 200 per tonne and decreased by the same amount, in the space of four months.

    UK based MEPS said that the vagaries of the LME nickel market have once again exaggerated the stop start nature of stainless steel sheet supply chains. In the early part of 2012, as in most years, buying activity picked up as distributors and end-users alike rebuilt their inventories, having earlier cut back their purchases in an effort to meet year end stock targets. This increase in demand and the resultant temporary tightness in supply enabled the mills to increase basis prices.

    Meanwhile, raw material costs escalated, leading to significant hikes in alloy surcharges for austenitic steels in February and March 2012. Traders of stainless steel are, understandably, more comfortable buying material when prices are rising. So, a virtuous circle of increased purchasing and escalating values is created.

    Asian mills do not normally employ formal alloy surcharges but still revise selling values monthly or even more frequently. Customers there tend to obey the straightforward rule of minimizing their purchases when prices are on a downward curve. The behavior of buyers in these circumstances is perfectly understandable. However, these actions disguise the true demand situation and make it difficult, for all concerned, to plan for the short to medium term.

    Most stainless steel producers and distributors in the West have been forecasting sales volumes for this year that do not differ greatly from those of 2011. MEPS continues to predict significant growth in demand and output in China, albeit increasing by less than in recent years. Consumption in that country, though, can be inconsistent because the focus of centrally planned development may switch from time to time. In Japan, the phasing of reconstruction following last year's disasters may also lead to peaks and troughs in demand. These natural uncertainties are further complicated by the artificial variations arising from the commodities markets.
    The question asked by market participants and observers, every year, is, "How long will this upward trend last?" The pattern, in recent times, has been for prices to increase more steeply, over a shorter period, each year. It has been apparent for some time that alloy surcharges were likely to fall in April 2012. This was confirmed by producers in Europe and North America last week. The result is that the completion of stock replenishment programs coincides with the buyers' realization that transaction values will be lower in the near future. Consequently, purchasing activity grinds to a quite sudden halt.

by--MEPS