Commodities | Sep 02 2009
By Andrew Nelson
It’s been a tough twelve months for stainless steel. Steel industry consultant MEPS reports that from August 2008 to now transaction values for cold rolled coil type 304 stainless steel in North America were down by approximately 60%, by 52% in Europe and by 47% in Asia. Not a good year by any standards.
When LME nickel prices fell below US$10,000 per ton and both chromium and molybdenum were also down more than 70% by April, most stainless steel buyers began to pull out of the market en masse. This saw holders of stock rush to empty their warehouses as the value of their inventories collapsed.
By this point even drastic price cutting could do little to encourage any real support for purchase volumes.
As a result, steel mills the world over slashed output in hopes of trying to stabilise the market. The good news is that all of the production cuts and de-stocking that came along as a result of the falling volumes are finally starting to bite.
At the end of the last quarter, MEPS reports that stock levels at both distributors and end-users were very low, while input costs also began to rise. At the same time, stainless steel end user sectors like the automotive industry also started to recover. The combination of these factors have helped mills increase stainless sales over the past three months, according to the report from MEPS.
So while in historic terms, consumption is still far from healthy levels, MEPS expects end-user customers to keep increasing order volumes to begin to slowly start filling the gaps in their sold down inventories.
The problem is that at the same time, rising prices for nickel, chromium and molybdenum and a solid benchmark price for steel will continue to put upward pressure on stainless prices in the months ahead. And with MEPS expecting consumption to remain reasonably low for the rest of the year, it will be a while yet before we see a real increase in prices.
The industry consultant reasons that neither Europe nor the US are likely to build any meaningful levels inventory in the run up to the calendar year end. So with production in all regions expected to rise over the fourth quarter of 2009 in response to an improving macro outlook, MEPS fears that this could lead to oversupply and thus weaker prices for the last few months of the year.
This is all short-term concern, as MEPS is another one that buys into the current global recovery story. The consultant expects that the current improvement in global economic conditions will be the first steps on the road to recovery for stainless steel.
In fact, MEPS is confident credit availability will increase as the credit crisis wears off and this will filter through to less strained industrial balance sheet and improved sales across the steel industry.
On top of that, MEPS expects ongoing Government stimulus projects around the world will also provide a boost for stainless demand. And if recent improvements in consumer spending are able to be maintained, they too should provide support, especially for sales into in the appliance manufacturing sector.
It goes without saying that a continuation of this type of broad-based macro improvement will be the real cornerstone of any recovery for stainless steel, as it will give distributors enough confidence to really start building up inventories again.
With this all yet to flow though, MEPS reckons we’re still more than a few months off of a real recovery and forecasts that stainless steel prices will begin to rise early in 2010, with advances expected to continue up to mid-year.
