Commodities | Jul 02 2009
By Rudi Filapek-Vandyck
Stainless steel producers throughout the world have been successful in raising product prices, reports industry researcher MEPS, adding these price rises appear to take place against a background of no increase in underlying demand in most markets.
This raises the obvious question of why customers are willing to accept higher prices when end-user consumption doesn’t apper to be increasing?
MEPS believes a key factor is that steel producers have been selling product at less than cost for some time. Now, these producers find that sales volumes are not significantly affected by price movements. This, explains the researcher, is related to the fact that buyers are purchasing only for immediate needs. Another contributing factor seems to be the fact that inventories have been drawn down and the first holes are starting to appear with delivery leadtimes stretching out to several months.
According to MEPS, government stimulus measures in Taiwan, India and China have brought about what could be considered real increases in demand. Many of the producers in these countries have been operating at close to full capacity in recent weeks, reports the researcher.
Rising nickel prices over the past ten weeks have pushed up input costs and this too has contributed to the decision to lift prices. The researcher believes the nickel price is potentially inflated, given the high level of stocks in LME warehouses. This view comes with the observation that past experience shows that market fundamentals do not always apply in this sector.
MEPS states overall market fundamentals would suggest an orderly growth in price and consumption of stainless steel lies ahead, with real demand remaining weak in most countries. Nevertheless, suggests MEPS, rising stainless steel prices over the next few months may prompt buyers to rethink their current conservative approach to purchasing. April is widely considered the bottom point of this steel cycle.
