Updated 08.03.2010
Following a relatively significant decline during December 2009 and first half of January 2010 prices of stainless steel and in particular the molybdenum carrying grades are now increasing rapidly. The price rally can mainly be explained by increases in the cost of nickel, chrome and molybdenum (see below), and partly by a significant weakening of the Euro towards the US-dollar. A weaker Euro amplifies the increases in raw material costs and it makes Asian stainless steel producers less competitive in Europe. Finally the price increases can be explained by increases in European base prices on all stainless steel products.
Base prices increase
In light of the extreme market conditions that prevailed during the second half of 2008 and all of 2009 the European stainless steel manufacturers have realized that the only way to return to profitability is by achieving price rather than quantity increases. Consequently all European mills have reduced the capacity utilization by 25-50 % to limit the supply of material to the market. The effect of such capacity reductions have previously been off-set by increased import from Asia, but due the increases in raw material costs and
The unambiguously picture is that the European manufacturers are attempting to increase the base prices and their ambitions is to continue to do so until the middle of 2010, where they expect base price increases of EUR 100 to 200/t to be a reality.
The latest price increases have already been accepted by the stock holders, but Dacapo believe a more positive and sustainable increase in the underlying consumption is necessary, before further base price increases are achievable.
Nickel, chrome, molybdenum and alloy extras
Here below are the average nickel prices that form the basis for the monthly alloy extras.
| Month | Eur/ton | Dif% | Period |
| April | 7,587 | 21.2 - 20.3 | |
| May | 7,949 | 5% | 21.3 - 20.4 |
| June | 8,959 | 13% | 21.4 - 20.5 |
| July | 10,183 | 14% | 21.5 - 20.6 |
| August | 11,077 | 9% | 21.6 - 20.7 |
| September | 12,988 | 17% | 21.7 - 20.8 |
| October | 12,622 | -3% | 21.8 - 20.9 |
| November | 12,282 | -3% | 21.9 - 20.10 |
| December | 11,942 | -3% | 21.10 - 20.11 |
| Januar | 11,136 | -7% | 21.11 - 20.12 |
| Februar | 12,816 | 15% | 21.12 - 20.01 |
| Marts | 13,372 | 4% | 21.01 - 20.02 |
| April | 14,931 | 12% | 21.02 - |
The average nickel price during the period 21st January to 20th February was 13.372 EUR/t, which is 4 % higher than the previous period. It is worth pointing out that the current nickel price of EUR 14.931/t is 12 % higher than the nickel price that will form the basis of the March alloy extra, which means that the April alloy extra is set for a further increase. It is, however, far too early to draw any firm conclusions on this.
The nickel price volatility is higher than ever before. Lately the nickel price has reached the highest level in two years measured in EUR.
Source: http://www.metalprices.com/
Unfortunately this price surge can’t be explained by changes in physical supply and demand. As it can be seen the above chart, the inventory of nickel in LME’s warehouses now stand at a record 160.000 t, which even excludes the significant quantities of nickel held outside the LME warehouses.
Only time will show whether the physical demand for stainless steel, and with this the demand for nickel, can match the craving investment appetite for nickel. One can fear that this shall not be the case, even if the predictions for stainless steel consumption have been gradually adjusted upwards. The latest publicized expectations for the European demand of stainless steel relative to 2009 increased from 5 to 10 %.
Prices of molybdenum and chrome have also increased very significantly by approximately 50 % since the end of 2009 and are now at the highest levels seen in two years measured in EUR.
Source: http://www.metalprices.comx/
The effect of this can be seen in the recently announced alloy extra increases, and assuming the prices of nickel, chrome and molybdenum maintain their current levels, the alloy extra in April will be yet again higher.
The surge in molybdenum will mean that prices for molybdenum carrying grades will increase faster than those of normal stainless grades.
Tubes
In their usual self destructive fashion, the tube mills chose to under bid each other during the final months of 2009, ending up with historically low base prices, which at some stage stood at 50 % of the bases prices of sheets. Entering into 2010 the tube mills managed to reverse this completely unsustainable situation, and have successfully hiked base price above those of sheets. The effect of this has not yet rippled through the distributors to the end users, but this will happen as the stockists run out of old cheap inventory.
Currently Dacapo experience quite significant delays on deliveries of tubes, because the mills are not able to get enough raw materials from the sheet mills. This is not because the sheet mills are not able to supply, it is because they do not want to supply. New delivery times for almost all tube products is now May.
Bars
The base prices on bars have increased but Dacapo does not expect further price increases right now. Also on the bar side delivery times are now longer, and we have seen some delivery delays.
Sheets
On an assumption that the physical demand and consumption doesn’t decline, which clearly appears to be the case, Dacapo believes these base price increases are achievable. Primarily we base this on the fact that delivery times are now extending, due to the caps on capacity utilization, and secondarily because there is currently now price difference between European and Asian mills, which will reduce the imports from Asia and support the contemplated price increases in Europe. Delivery time is now May/June.
Fittings
Prices on most fittings product are also increasing; especially flanges and other products with high material content.
Market activity
Dacapo has experienced a reasonably satisfactory increase in sales in January and February in comparison with Q4 2009. In fact Dacapo sold almost double the quantity in January 2010 compared to January 2009, but that – unfortunately – tells a lot more about the abysmal 2009 than it does about 2010.
The actual demand is still very low compared to the period preceding the crisis, and the 35 % drop in demand has brought the market size back to levels not seen since the middle of the 90’s
We do see many clear signs of improvement, and we expect a continued slow but steady development in the market demand and activity levels during the remaining months of 2010.