European stockists and end-users of stainless steel have trimmed their inventories as far as possible since the onset of the current economic difficulties. Transaction values bottomed out around March of this year. In the period to mid August, the LME nickel price soared, driven by speculators rather than by fundamentals. As a result, purchasers' anticipation of rising transaction figures, combined with the effect of stock replenishment, buoyed apparent demand on the mills and allowed stainless producers in the EU and US to increase their basis values, month-on-month.
As distributors and consumers rebuilt their inventories, delivery leadtimes grew and the mills began to feel they were missing out on possible sales. Some have, therefore, decided to increase their output in the final quarter of 2009. However, there is no sign of a rise in underlying demand. Despite positive trends in some economic indicators, unemployment continues to climb in many countries and real consumption is not forecast to grow until well into next year. Restocking targets may be been achieved and greater availability of material is likely to reverse the recent upward trend in basis prices.
In the US, the destocking process has not been so easy to complete and demand is still weak. Several suppliers have reported a flurry of enquiries which have not turned to orders. These may just be buyers testing the market. Some advances in flat products basis values have been introduced since May and the mills may even look for further hikes. The effect on alloy extras of the peaking nickel price in August has yet to be felt, though, and observers of the long products market, at least, believe it will not be possible to apply October's surcharges in full.
Demand in Japan is still depressed and although the major producers have announced several increases to their list prices in recent months, these moves have not found full acceptance in the market. Steelmakers in Taiwan and China operated at much closer to full capacity than anyone else during the first half of 2009. Now their home supply chains are overstocked and there is little or no demand from export markets in the West. Producers' prices in these countries do not carry alloy surcharges but tend to react quickly to changes in raw material costs. So, with oversupply, poor consumption and a lower nickel value, selling numbers have already started to fall. Suppliers are making cheap offers into the South Korean market, putting downward pressure on domestic prices there.
The Acerinox alloy surcharge remains out of step with those of the other main European producers, due to its different reference period. As a result, market participants in Spain negotiate effective prices. These deals are, of course, heavily influenced by the prevailing alloy surcharges of other regional mills. As it is our custom to publish the current alloy surcharge of the domestic supplier, our Spanish basis figures are calculated from the transaction values and are, therefore, notional.