Supply fundamentals lift Stainless Steel prices during December

UNITED KINGDOM January 03 2017 6:45 PM

LONDON (Scrap Register): MEPS reports that supply-side factors continue to push stainless steel prices upward, despite only moderate demand during December. In January 2017, the alloy surcharge from the European producer, Outokumpu, for grade 304, flat rolled products, will rise to €1340 per ton. This represents an increase of nearly 45 percent, compared with the figure one year earlier.

The cost of nickel has been a major influence on this rise. After reaching a low point of $7700 per ton, in February 2016, the LME Cash price climbed, throughout the year, and has averaged more than US$11000 per ton, during the past month.

While speculative investors have some effect on nickel’s commodity price, fundamental factors have also been involved. LME stock levels remain high, in historical terms, and global supply is, theoretically, in surplus. However, the practical situation, regarding the delivery of nickel to China, the world’s largest stainless steel producer, presents sufficient suggestion of tight supply to have an inflationary effect on prices.

Since Indonesia banned, in 2014, the export of laterite nickel ore (the raw material for nickel pig iron), China’s main source of the mineral has been the Philippines. However, the government of that country has recently closed a number of nickel producing mines, on environmental and safety grounds. Any shortfall in supply will be exacerbated by the impending rainy season, which reduces mining output, in the early part of each year.

In mitigation, since the ore export ban, Indonesia has developed production facilities for nickel pig iron and stainless steel, as was its government’s intention. These facilities are, predominantly, Chinese-owned and their output feeds into that country’s supply chain.

The costs of the other key raw materials have also contributed to rising stainless steel values. The European quarterly charge chrome benchmark price for the first three months of 2017, at US$1.65 per pound, is 79 percent higher than the year earlier figure. Current ferrous scrap values in Europe and North America represent a 55 – 60 percent increase on the cost one year ago. Availability of the raw material has been tight, while rising iron ore prices have influenced the wider carbon scrap market.

Source: MEPS