Commodities | Oct 03 2006
By Chris Shaw
An increase in the nickel price from around US$20,000 per tonne in June to close to US$30,000 per tonne in August has ensured prices in the stainless steel market continue to push higher, though steel industry consultant MEPS suggests there is now a risk of overheating.
The risk comes from alloy surcharges, which the industry consultant notes have risen by more than 150% since January and now stand at more than US$2,500 per short tonne in the US market and at 1,900 euros in the European market.
MEPS expects the surcharges will remain at such high levels for at least another two months, as the nickel market continues to show signs of a shortage. The exact cause of the shortage remains uncertain, as MEPS notes there are arguments for both a structural shortage or as a result of speculators taking positions in the market.
Either way there has been little impact on the stainless steel market as production remains at record levels, MEPS noting for the first half of the year crude stainless output rose 6.5% year-on-year to almost 13.9m tonnes. Much of the increase occurred in the June quarter, as production in this three months was 12.6% higher than for the same quarter in 2005.
In MEPS’s view September quarter figures are likely to show ongoing strength, as it expects buyers have increased orders to beat the increases in surcharges coming into effect in September and October.
But it is this rush for orders which poses some downside risk, as MEPS suggests many orders were double bookings and stand to be cancelled, meaning demand may fall short of expectations. If this occurs there could be some signs of weakness emerging in the market, which in turn is likely to encourage buyers to hold off in the expectation of achieving lower prices in coming months if surcharges fall as volumes decline.
