Stainless steel prices are relatively stable this month, showing little change since our previous tracker. Such stability masks growing issues for stainless steelmakers, however, who are increasingly unable to pass on rising costs to consumers and are, thus, facing cuts to their margins.

In general, this is due to an excess of supply chasing buyers in a much-reduced market. While some production cuts have been enacted, particularly notable for their scale relative to pre-pandemic levels of production in Europe, they have not been enough to balance the market. The relatively high inventory levels, a symptom of a slowing market even before the Covid-19 pandemic shook global markets, meant consumers reduced their order levels and have been able to negotiate discounts when orders have been placed.

Although economic activity is now picking up in most key regions of the world, it remains below year-ago levels, which is likely to be the case until at least the fourth quarter of 2020, assuming there is no significant resurgence of Covid-19 cases and new lockdowns - with signs of this already apparent in the United States and the UK.

Even then, many producers are likely to continue operating in a lower volume environment. We note that during the past decade, few western markets ever saw stainless steel production return to the levels seen before the global financial crisis in 2008. We expect a similar pattern to emerge over the coming years - an L-shaped recovery is most likely outside of China, as we discussed during our ferro-alloys webinar on June 30. Nevertheless, most western stainless steel producers are better-placed to survive - and possibly thrive - in tougher business environments. Meanwhile, the outlook is for a general continuation of the recent trend, with prices more likely to erode than make any notable move upward.

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