Which came first, the chicken or the egg? Several years ago, nickel prices shot through the roof, on the back of strong stainless demand. Creative engineers the world over reviewed their company’s requirements to find any alternative to high priced nickel. Yet despite the plethora of stainless types available in the market (the Welding Journal describes these in detail here), most of the alloying elements, nickel, molybdenum and ferrochrome enjoyed big price increases.
But that was then and this is now. Stainless demand, like every other metal, faces significant declines in demand. But unlike it’s brother carbon steel, the stainless market started softening earlier last year, prior to the Beijing Olympic Games. The infamous demand-will-pick-up due to “restocking after the Olympic Games,” never really happened. And it’s unlikely that it will happen much before the end of this year as companies face the triple whammy of sluggish demand, lack of credit and poor cash flow. So though some are calling for this “re-stocking” by the end of the year how much remains to be seen.
What is noteworthy is how quickly the ferrous producers have cut production to shore up the price as quickly as possible. Whereas the same can not be said of the non-ferrous producers as we have discussed previously. This raises an interesting point with regard to stainless. On the one hand, large stainless producers such as Allegheny Technologies and AK Steel have both furloughed and laid off workers to shutter capacity, similar to what the big steel producers have done such as ArcelorMittal. On the other hand, metals such as aluminum and nickel “were expected to lag in a recovery because of high and rising stocks,” according to this Guardian article. We recently posted our predictions on nickel. You can read them here. Though aluminum is irrelevant in terms of stainless, the excess supply of nickel and the lack of massive production cuts are continuing to drive the price of nickel down. Nickel, in turn, will continue to drag down the price of stainless.
Ferrochrome producers have [smartly] cut production by half but that’s unlikely to shore up the price of ferrochrome. Stainless demand and “de-stocking” will have to work their way through the system before ferrochrome prices recover anytime soon. We wrote about this back in August of last year. The price back then, in comparison, looked absurd at nearly $3/lb compared to today’s price in the mid $.40’s/lb.
Molybdenum has behaved rather similarly to ferrochrome (as opposed to nickel) in that supply has been curtailed and several new projects have been put on hold in an attempt to better match supply with declining demand. But unlike ferrochrome, with 70% of its demand used in stainless, only one third of molybdenum supply is used in stainless. The balance is used in general steel-making, such as tool steels and high temperature alloy steels. So molybdenum pricing may actually take its pricing cues more from steel whereas nickel and ferrochrome will receive the majority of its pricing cues from overall stainless demand. In other words, we might expect molybdenum prices to increase before both nickel and ferrochrome.
All of this has resulted in a steep drop-off in stainless pricing. And the pricing is below forecasts from December. Purchasing.com reported a forecasted surcharge of $.70/lb for January and $.62/lb for February but our own MetalMiner IndX(SM) is reporting surcharges of $.40/lb and $.41/lb for 304, depending on the producer. However, surcharges may start to move up to the low $.50’s per pound. Regardless, if the average price of stainless for 2007 was $2.44, the average price in 2009 will likely not even hit a quarter of that average price. It’s about 0.70/lb ex distributor now before surcharges are added, ex mill it is probably one quarter of 2007’s average (before surcharges). Our call? Stainless will go steady to lower through Q3 of 2009. Only if demand picks up in the fourth quarter will we see any price appreciation.
–Lisa Reisman & Stuart Burns