UK based MEPS said that the usual, seasonal upturn in demand for stainless steel has failed to occur, so far. In most years, distributors and end users allow their inventories to run low during the summer holiday period, then rebuild stocks in early autumn before what they hope will be a busy few months before the year end. On this occasion though, there has been little or no pickup in activity.
The underlying demand for stainless steel is weak. The ongoing effects of the global financial crisis and the euro zone problems are widespread. Credit is tight, making it difficult for entrepreneurs to invest and for consumers to spend. Governments, trying to reduce their debts, are reluctant to spend on infrastructure projects and are cutting expenditure in other areas.
The rate of economic growth in China has slowed dramatically, as demand for exports to the troubled West has crumbled. Following the huge investment in stainless steel production facilities over the past decade, the country now has substantial overcapacity.
The wild card, as always, in the stainless steel equation, is the commodity market. The LME Cash nickel price increased by over USD 2400 per tonne or 15% in less than three weeks in September 2012. This is despite the fact that nickel supply is forecast to be in surplus for the foreseeable future.
This will have an almost immediate effect on stainless steel prices. Chinese sellers react on an almost day to day basis. Taiwanese and South Korean producers have indicated that they will announce higher prices. Mills in the United States and Europe, with their more transparent surcharge systems, have announced increased alloy extras for October 2012.
The higher nickel costs should provide a reasonable trigger for buyers to start purchasing stainless steel at least in the short term. Customers have lean inventories and need to rebuild them. Distributors and service centers have gaps in their stocks that need to be filled. The LME nickel price has continued to increase since the calculation of the October 2012 surcharges, suggesting that the November figures will be higher still.
It is likely, for the reasons set out above, that there will be some increase in purchasing in the coming weeks. Some buyers have been holding out for lower transaction values but, with basis figures close to the mills' breakeven marks and surcharges seemingly on the up, it appears that the bottom has been passed. However, purchasers will temper their enthusiasm. While there have been some green shoots of recovery detected in several countries, there has been little to indicate that 2013 will be a significantly better year for stainless steel, either in terms of volumes or profits.
Source: MEPS - Stainless Steel Review
(www.steelguru.com)
