Upturn in alloy surcharges will not kick start Stainless Steel market

UNITED KINGDOM April 05 2016 4:47 PM

LONDON (Scrap Register): The London Metal Exchange Nickel Cash price climbed by more than 17 percent between February 15 and March 11, this year, peaking at more than $9000 per tonne, before softening and stabilising at around US$8600 per tonne. This will have an inflationary effect on transaction values for nickel-bearing stainless steel grades, in the near term, said MEPS in a research note.

The majority of the sharp increase occurred during the reference period for April’s alloy surcharges, in the countries where such extras apply. In Europe, for example, Outokumpu’s surcharge for grade 304 flat products will rise by €42 per tonne, compared with the March figure. This is the biggest month-on-month increase in more than a year.

MEPS forecasts a further, more moderate increase in alloy extras, for May. Historically, such an upturn in effective prices, after a long, downward trend, would signal an increase in purchasing activity, as buyers placed orders in anticipation of rising future transaction values.

On this occasion, however, supply chain participants are not expected to react in the traditional manner. Market observers do not believe that the uptick in nickel values marks the beginning of a prolonged upward curve. LME stocks – more than 430,000 tonnes, at time of writing – remain close to the all-time high level. Furthermore, mining and processing capacity continues to exceed the current consumption of nickel. 

Worldwide economic growth remains weak. Consequently, general demand for stainless steel is mediocre, while specific, large-scale consumers, like the oil and gas sector, have scaled down their activities, due to the fall in prices for their products.

In summary, neither nickel nor stainless steel is expected to record significant price advances in the next six months. As a result, customers will continue to buy only for their immediate requirements.