Higher Nickel Costs Not Tempting Stainless Steel Users to Buy Early

Alloy surcharges on austenitic grades of stainless steel flat products will fall again in January. Type 304 alloy surcharges will be at a 16-month low in Europe, and at a two-year low in the USA – this is in spite of some US mills having added an energy component onto the figure from November.

The falls follow declines in raw materials costs. Chromium, unalloyed scrap and nickel are all well down from the peaks they reached earlier this year. It is nickel that has the biggest influence on surcharges, and the LME’s monthly average settlement price fell to just over $US12,100 per tonne in November from nearly $US14,900 per tonne in August. The drop in surcharges in the last few months has prompted many stainless buyers to stay away from the market as much as possible. They may have to change their strategy if surcharges rebound – and there are signs this is about to happen.

Nickel prices have staged a surprising resurgence in the last few weeks. Since mid-November, the LME settlement price has changed from below $US12,000 to over $US14,000 per tonne. In the first week of December alone, the cash nickel price jumped 9.5 percent. This rise appears to fly in the face of market fundamentals. Nickel users have been running down their stocks. Cuts in stainless production have reduced demand and inventories of the metal in LME warehouses stand at a two-year peak. Nevertheless, the nickel price is being driven upwards – partly through buying by commodity fund managers, and partly on the back of copper which has been trading at record highs.

January could be the month that alloy surcharges bottom out. Under normal circumstances, buyers would be taking advantage of this window of opportunity to replenish stocks before the surcharge starts increasing again. But we have detected no rush to place orders. Maybe the China effect has spooked the market with talk of large-scale stainless exports. Or, just maybe, buyers have their eyes on the fundamentals of nickel. These indicate that the metal’s price should go down as new production capacities come onto the market, and suggest alloy surcharges may not continue going up for very long.

Source: MEPS - Stainless Steel Review

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