European Stainless Steel Prices Lose Link to
Raw Material Costs
European stainless steel prices continue to fall, relative to the costs of the
constituent raw materials. The “basis plus alloy surcharge” pricing system has
been abandoned for most deals between the producers and the major buyers, such
as large distributors and stockists. Nevertheless, the mills continue to publish
their alloy surcharges. Therefore, it is possible to calculate a nominal basis
price, by subtracting the alloy extra from the “effective price.”
On several occasions, this year, transaction values have risen by less than the
increase in the published alloy surcharges, or fallen by more than the decrease
in the mills’ announced figures. In either case, the nominal basis price is
The numbers produced, in recent months, have fallen far below the figures
historically thought to represent the producers’ breakeven levels.
The root of this problem lies in the discrepancy between the cost of raw
materials – in particular, nickel – and the demand for finished stainless steel.
Traditionally, stainless steel production has been the overwhelmingly largest
consumer of nickel. Consequently, demand for the alloy has been the major
fundamental factor in nickel pricing. In recent times, though, the commodity
value of nickel has been affected by anticipated future requirements for the
metal, by manufacturers of electric vehicle batteries. This has been compounded
by supply constraints, such as the nickel ore export restrictions imposed by the
governments of Indonesia and, previously, the Philippines. Consequently, the
nickel price increased, this year, in a manner seemingly out of line with
activity in the stainless steel industry.
In mitigation, due to their modest production volumes, the European mills have
been able to achieve discounts in their outlay for stainless steel scrap. Recent
reports suggest that they have been paying less than 60 percent of the intrinsic
LME price for the nickel contained in the scrap. Assuming a 60 percent scrap mix
in their steelmaking process, this could have recently saved around €300 per
tonne of crude stainless steel produced, compared with the cost of paying the
full LME nickel price.
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