Stainless prices increasing

Stainless steel transaction values are rising steeply in most markets around the world. Producers and stockists will hope this is an opportunity to secure the profitable type of business that has been so hard to find since the onset of the global financial crisis. Now, we should examine the forces that are driving these higher prices and ask for how long they will be sustainable.

Nickel figures on the London Metal Exchange have risen more than most observers anticipated during the past two months. In part, this may be due to speculators, who have found metals to be a sound investment in recent times, while returns from some other parts of the money markets have been poor. On the other hand, there are some fundamental factors connected to the stainless steel industry. Scrap containing nickel and chromium is in short supply. Arisings from manufacturing have reduced during the global recession and collections of end-of-life materials have slowed due the depressed prices available during the last two years. Moreover, underlying demand from the developing markets, particularly in Asia, continues to increase.

There are other points supporting the current escalation in stainless selling values. On the supply side, the mills can point to a number of increased input costs. Furthermore, many producers have been selling at or below break even levels for some time and are now trying to ensure a decent margin. On the demand side, most supply chain participants need to replenish depleted inventories, while stockists and end-users alike may attempt to place orders in advance of anticipated further hikes.

However, most of the factors mentioned above will turn around sooner or later. Global nickel stocks are comparatively high, potential supply exceeds forecast consumption and institutional investors could change their strategy and pull out of metals at any time. Whilst a gradual advance in stainless consumption is anticipated, we have limited reports of notable improvements in underlying demand, as yet. The summer holiday period in Europe and North America traditionally signals a drop-off in activity and, unless manufacturing operations pick up spectacularly, it will be difficult to maintain stainless transaction prices through this time.
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