UK based MEPS said that the long awaited pickup in stainless steel purchasing activity has not materialized. On the contrary, the expected seasonal summer lull in consumption appears to have arrived early in many parts of the world. Even in regions where the spring traditionally heralds an upturn, led by the construction industry, demand from manufacturing and other applications has dropped off. Indeed, in some countries, consumption by the building sector has been disappointing and this has led to overstocking by distributors.
Falling prices have, of course, contributed to the malaise. Nickel values have been on a downward trend since March and, like most commodities, dropped sharply at the beginning of May. This was due to speculation on the commodity markets and had little to do with the fundamentals of either nickel or stainless steel.
In fact, the supply of nickel has been in deficit so far this year but this has been absorbed by a reduction in both LME stocks and Chinese inventories. However, production is forecast to outstrip demand in the second half of 2011. It is, therefore, likely that nickel prices will be lower, on average, in the remainder of the year.
The visibility of forthcoming alloy surcharges leads, understandably, to a reluctance, on the part of customers, to place orders when they can see lower transaction values on the horizon. This situation has led to some panic in Europe, where service centers have been offering cold rolled coil and sheet at less than the local mills' effective prices including the June 2011 surcharge.
Underlying demand in the United States is still perceived to be improving but there, too, sales activity is slowing. Furthermore, the basis price hikes for flat products, which were announced for application from April 1st 2011, have been rescinded.
Market activity in the western world is likely to remain subdued until after the summer break and there are few signs of a major upturn in consumption or transaction values in the latter part of the year.
(Sourced from MEPS - Stainless Steel Review)
