GLOBAL STAINLESS OUTLOOK: Section 232 to support US Q3 prices; Asian outlook mixed; Europe outlook hinges on safeguarding measures

Stainless steel prices in North America are likely to be supported by the US Section 232 steel import tariffs while, in Asia, Chinese production cuts on environmental grounds could support prices in the third quarter.

And in Europe, price stability is expected unless safeguarding measures are introduced by the European Commission, with a preliminary decision expected within the next week. Prices are likely to increase if the Commission decides on significant action.

United States
Stainless steel market participants in the US expect prices to move higher in the coming weeks, with major mills likely to implement base price rises.

American Metal Market’s latest price assessment for grade-304 cold-rolled stainless sheet was $144 per hundredweight on Tuesday July 10, compared with $140 per cwt a month before.

Many market participants expect major mills to take advantage of the uncertainty created by the 25% tariff on steel imports that was imposed by the US under its Section 232 powers in March. Various countries and regions have responded to this with retaliatory tariffs, while companies are still waiting to hear whether they have received product exemptions.

US stainless long products maker Electralloy will raise base prices on all its stainless steel products by 3-8% with effect from non-contract orders beginning on July 16, the company said in a letter to customers on July 5.

Compatriot company North American Stainless (NAS) had already announced a base price rise in June for a number of long steel products, effective on shipments from July 1.

“I wouldn’t be surprised to see a couple of moderate base price increases,” one distributor in the US Midwest said.

But current market conditions, including stable demand and firm lead times, do not warrant a rise in base prices, other market participants said.

A second US Midwest distributor agreed that mills would probably raise their prices, although he accepted that lead times of 10-12 weeks indicate that demand does not support a price increase.

If mills do attempt to push through another base price increase, a Southern US distributor warned that imports would become competitive with similar domestic product. But that still would not deter mills from implementing a rise, he said, adding: “They can and they will.”

Stainless steel prices will also be supported this month by broadly higher surcharges. All grade-201, 304 and 316 products showed increases, while surcharges for grade-430 products were largely lower month-on-month for July.

Asia
In Asia, the outlook for stainless steel is unclear. Many market participants believe that prices will hover around current levels, with no major price rises being expected.

Factors contributing to the uncertainty from both buy-side and sell-side participants include fluctuations in nickel prices, the loss in value of the Chinese yuan, and fears of a trade war between the US and China.

Trading activity in Asia is likely to remain muted for the coming quarter as a result, with sources saying that it is too difficult to predict the direction that prices of Asian stainless steel products will take.

“It’s a tough question for now, but prices could move up or down by 10% from present levels,” a trader in Southeast Asia said.

Previously, Chinese and Taiwanese mills had kept their stainless steel offers high because of increasing production costs, particularly due to the price surge in nickel since April. Importers were reluctant to accept the elevated offers, especially from China.

But prices in the nickel segment have appeared to be easing slowly in recent weeks. And the prices of steelmaking raw materials such as iron ore imported into China have also been falling.

If those downtrends continue for a longer period, stainless steel suppliers will not be able to cite rising production costs as a reason to raise their offers, a buyer source based in southern China said.

“I don’t think prices will rise significantly in the next few months, and there also probably won’t be many large-volume bookings,” this source said.

Spot market inventory levels in China have been low, which sources said might provide some short-term support to prices until late July.

The availability of China’s stainless hot-rolled steel is going to tighten further in the next few months as a result of environmental inspections. More than 600 induction furnaces will be dismantled in Daidan in Jiangsu province, according to China Metallurgical News. This will result in the town’s stainless steel capacity decreasing to 1.5 million tonnes per year from the current 4.14 million tpy.

Officials have not given a deadline for this crackdown, but steel mills in eastern China and southern China, such as Tsingshan Steel and Desheng Stainless Steel, were heard to have cut back their production because of the environmental inspections.

“Sellers’ profitability is improving slightly because stocks are quite low, and the environmental inspections have led to some production cuts,” the buyer source said.

The shorter supply pushed up stainless HRC prices to a level where the margin was very narrow to cold-rolled coil (CRC).

The price of grade-304 stainless HRC was 14,900-15,000 yuan ($2,246-2,261) per tonne on June 6 in China’s major market of Wuxi, while the price for CRC was 15,300-15,400 yuan per tonne, just 400 yuan per tonne higher.

The price gap is expected to narrow further due to the tight supply of HRC, market sources said. “The reasonable price gap between the two products should be 600-700 yuan per tonne,” a senior trader in eastern China said.

Market participants, however, are less bullish about prices despite the fact that supply might decrease. Actual demand is likely to remain subdued and unable to catch up with any eventual growth in supply, so any price rises may not be sustainable, participants said.

They expect soft prices in July and August, and a rebound in September, based on their demand outlook. “July and August are still in a seasonally weak period, so demand has no chance to rise,” a second trader in eastern China said.

Import prices in East Asia have recently softened slightly, following sustained weakness in demand and inactivity in the spot market.

Metal Bulletin’s price assessment for grade-304, stainless, 2mm, trimmed CRC was $2,210-2,300 per tonne cif East Asian ports for the week ended July 11, narrowing upward by $10 per tonne from the previous week.

The weekly assessment for grade-304, stainless, trimmed hot-rolled sheet was $2,120-2,200 per tonne cif East Asian ports for the same period, narrowing downward by $80 per tonne [LINK2].

The influx of cheap Indonesian stainless steel offers and bookings into Asian markets may also affect trade flows and prices in the region.

Offers from Indonesia for stainless CRC were heard at $2,150-2,175 per tonne cif East Asia in the week ended July 4, down by $25-50 per tonne from a week earlier. In comparison, Chinese and Taiwanese stainless CRC were offered at $2,250-2,330 per tonne cif during the same period.

Indonesian cargoes have been “aggressively” priced at lower levels than those from other Asian suppliers in an attempt to woo more buyers, a processor source in Southeast Asia said.

But participants are unsure how much longer Indonesia’s prices will stay low.

Europe
Base prices in Europe for stainless steel flat and long products were largely expected to remain unchanged throughout July and August. Historically, this is a relatively quiet and stable period of the year, and participants have said that the market appears to be following this trend as we enter the third quarter.

Indeed, all of Metal Bulletin’s Europe stainless steel base prices have held steady since June 8.

On July 6, the weekly base price assessment for 2mm, grade-304 cold-rolled (CR) stainless steel sheet in Northern Europe remained stable at €1,000-1,050 ($1,173-1,232) per tonne delivered, while the weekly assessment for grade-316 CR stainless steel in Europe was €1,300-1,350 per tonne.

The weekly assessment for European grade-304 bright bar base prices was also steady on the same date at €1,000-1,080 per tonne.

The factor most likely to disrupt this typically steady season is the potential imposition of safeguarding measures on steel imports into the EU. The European Commission is expected to announce a decision early this month on whether preliminary measures will be imposed, and what these measures will look like.

Safeguarding measures would be an attempt to prevent the redirection of steel shipments originally destined for the United States to the EU market, following the imposition of US import tariffs under Section 232.

Currently, European base prices are being prevented from rising by the option of buying lower-priced imports from Asia. While European material enjoys a certain extent of customer loyalty, because of quality and specification requirements, there is nevertheless a degree of competition that has prevented European base prices from increasing substantially.

Sources agreed that any significant safeguarding measures would largely eradicate these imports and that European prices would increase as a result.

But if no significant safeguarding measures are imposed, market participants expect there to be price stability until at least the beginning of September. Imports will continue to arrive but the current equilibrium between domestic and imported prices is unlikely to change significantly, given that such imports are not a new phenomenon.

“The Asian imports aren’t a concern, the market is used to them,” one distributor said, while another added: “If the EC can wipe out imports, [European] prices will go up. If not, the imports won’t pull [European] prices down, but they will keep them at a competitive level.”

Market activity had already begun to lessen by the first week of July, with sources saying that this is entirely in keeping with historical trends and expectations for this period.

Despite the downturn in traded volumes, sources noted that demand appears to be healthy relative to supply, as indicated by the fact that lead times for long products are three to five months. For flat products, they are around eight weeks.

The euro-dollar exchange rate has also held relatively steady in recent weeks and this situation, should it continue, will also mean minimal pressure on prices.

“As always in summer, nothing will change,” a third distributor said. “I think the alloy surcharge should also not go up for August. At the moment, the exchange rate is pretty stable, nickel is stable… September, that’s the question.”

Alloy surcharges do not typically change in July and August, sources said, and a stable surcharge would mean a further absence of pressure on base prices.

How the prices for stainless raw materials develop will probably be the main driver of stainless steel prices in September, if no significant safeguarding measures are imposed.



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