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Editor's Blog and Industry Comments

MEPS: Steep rise in nickel costs boosts stainless steel prices

22 April, 2014
The forecast upturn in demand for stainless steel did not materialise during the first quarter of 2014. As a result, basis figures, net of alloy adjustments, have risen very little, if at all. However, recent increases in nickel costs have lifted stainless transaction values and kick-started purchasing activity.

The recent rapid rise in LME nickel figures has shown how speculators on the commodities markets tend to react in a more volatile manner than raw fundamentals would suggest.


 


The Indonesian mineral ore export ban has had a small effect since the beginning of the year, causing prices to climb slightly. However, other, conventional nickel producers have stepped up their output in order to reduce the shortfall. In fact, as MEPS has previously written, nickel supply continues to be in surplus relative to current demand. Furthermore, significant excess inventories remain, in LME warehouses and in other stockpiles – notably in China.


 


The nervousness of speculators has been exacerbated by the recent unrest in Ukraine and Crimea, which has led investors to panic over the outlook for the international availability of nickel from Russia. Again, the reaction of the market has been disproportionate to the real threat to nickel supplies.


 


The result of this activity is that the LME Nickel Cash price rose by over US$2000 per tonne between 25 February and 26 March, an increase of over 14 percent. Several metals quoted on the LME tend to follow the same, technically-driven trading patterns. However, the copper price, for example, which often follows similar trends to nickel, fell by around US$600 per tonne, or 7.5 percent, during the same period.


 


As a result of the rise in raw material costs, austenitic stainless steel transaction values have advanced in recent months and are likely to continue to do so in the short term. In addition, many market participants report positive signs, reflecting that consumption will increase, either due to seasonal trends or because of genuine, underlying economic recovery. This, together with the input price inflation, may enable producers to lift basis values, too.


 


This combination of factors will lead to some contradictory behaviour. Some stockists will build their inventories, hoping to sell material quickly, at a greater margin, while prices continue to rise in the near term. Others, such as OEMs, may have replenished their stocks during the early part of the year, when selling values were low. Now, with no need to buy large quantities, they may minimise their purchases, in the belief that prices will decline again within a few months.

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