GLOBAL STAINLESS WRAP: Mills see prices erode after mid-Q1 high

Relatively high prices for stainless steel products across the globe in the first quarter of 2017 are unlikely to be sustained in the second quarter, as high stock levels and modest demand create problems for producers in the Asian, European and North American markets.

ASIA: Chinese prices erode in first quarter
The Asian stainless steel industry saw relatively high prices erode during the first quarter of 2017 as weak nickel prices and market demand did not support Chinese producers and exporters.

Chinese stainless steel prices overall were higher both year-on-year and quarter-on-quarter in the first three months of 2017.

The quarterly average price for grade-304 stainless cold rolled (CR) coil was 16,038 yuan ($2,324) per tonne.

This was up by 41.98% from 11,296 yuan ($1,637) per tonne a year earlier, and 2.89% higher than 15,588 yuan ($2,259) per tonne in the fourth quarter of 2016, according to Metal Bulletin data.

However, those prices dropped sharply on March 30, tumbling to 14,500-15,000 yuan ($2,101-2,174) per tonne, from a quarterly high of 16,500-16,800 yuan ($2,391-2,435) per tonne on March 3, amid weak demand and strong selling efforts.

In January, some stockists booked relatively large quantities of stainless steel from Chinese mills, on expectations of high profits and strong demand in the usual mid-season from March to April.

But demand from end-user markets did not rebound during the quarter, lending no support to stainless steel prices. By early March, stockists had relatively high-priced inventories and were worried about eroding margins as the value of their stocks fell.

Meanwhile, nickel prices on the London Metal Exchange also dropped sharply, to $10,060-10,070 per tonne on March 10 from the bid/offer spread on March 1 of $11,060-11,065 per tonne. As a result, Chinese producers cut their prices significantly in order to pursue higher sales volumes.

In the East Asian markets, stainless steel import prices changed in line with China’s domestic prices during the first quarter, as China remained the largest exporter of stainless steel products to that region.

Grade-304 stainless cold rolled coil (CRC) prices peaked on February 17 at $2,250-2,300 per tonne cif East Asian ports, before falling to $2,000-2,050 per tonne cif in the week that ended on March 29.

By the last two weeks of the first quarter, China’s export activity had become sluggish as a result of its producers’ relatively high prices in earlier weeks. Demand from China’s largest export market, South Korea, remained poor.

However, prices rebalanced in line with market demand in early April, spurring increased buying interest from importers of Chinese products. Indeed, more deals were reported by market participants in the first week of April.

Chinese prices could stabilise
Chinese stainless mills are continuing to bleed profits after the sharp drop in prices at the end of the first quarter, so they may announce temporary maintenance shutdowns in April in order to reduce output, sources said.

An analyst revealed to Metal Bulletin that more than ten producers plan to take maintenance outages in April, which could reduce stainless steel output for the month by more than 150,000 tonnes.

Chinese stainless steel prices dropped by 2,700-3,100 yuan ($391-449) per tonne to 14,500-15,000 yuan ($2,101-2,174) per tonne on March 30, from the 33-month peak level of 17,600-17,700 yuan ($2,550-2,565) per tonne on December 12, 2016.

Market participants predict only a small possibility that prices will show a further sharp drop in the second quarter. However, importers in East Asia are expected gradually to become more active, as end-user demand recovers amid China’s low prices.

EUROPE: Mills enjoy higher margins
The European stainless steel industry benefited strongly from the increase in raw materials prices over the first quarter of 2017.

Higher margins for mills can be demonstrated by the recent divergence between Metal Bulletin’s EU grade-304 raw materials index and the increase in monthly alloy surcharges, which European stainless steel mills use to pass on raw materials costs to customers.

Metal Bulletin’s EU grade-304 raw materials index, which calculates the input cost of one tonne of grade-304 stainless steel for producers, fluctuated between $1,261.67 per tonne and $1,323.07 per tonne over the first quarter. This compares with a range of $921.28 per tonne to $996.01 per tonne in the first quarter of 2016.

Alloy surcharges for grade-304 stainless steel sheet rose sharply from the December 2016 surcharge of €1,159-1,196 ($1,229-1,268) per tonne, up to €1,283-1,340 ($1,360-1,420) per tonne in January, following a sharp rise in the nickel price.

A further rise followed in February as the sharp quarter-on-quarter jump in the European ferro-chrome benchmark to $1.65 per lb was passed on to the monthly surcharge of €1,407-1,434 ($1,491-1,520) per tonne.

Finland’s Outokumpu, which has its own ferro-chrome production, said that the higher ferrochrome contract price would have a significant positive effect on its profitability, adding that it expects to report adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) of more than €250 million ($265 million) for January-March 2017.

Spain’s Acerinox also expects its first-quarter 2017 results to “significantly improve” compared with its fourth quarter of 2016.

Delivery times from mills for orders placed over the first quarter of 2017 gradually extended to June and July, with stainless steel demand attributed more to stock-building than to strong underlying end-user demand.

Order intake at European stainless steel mills in January and February was “5-10% higher” than in the corresponding months in 2016, according to Danish distributor Damstahl, with distributors able to maintain higher levels of inventory.

The stronger demand in addition to higher raw materials prices allowed mills to raise their base prices by €35-40 ($37-42) per tonne over the quarter to €1,140-1,165 ($1,208-1,235) per tonne at the end of March.

Rises unlikely to last
While both base prices and alloy surcharges have risen over the first quarter, the upward momentum is unlikely to continue.

Stainless alloy surcharges will probably fall in May. The second-quarter ferrochrome benchmark has dipped by $0.11 per lb to $1.54 per lb, and the nickel price has weakened because of potential increases in nickel ore export volumes from Indonesia and the Philippines.

“Large-volume buyers of stainless steel have sufficient stocks – this is even more so after the pickup in orders [in early March] – and should be able to [continue to operate] through what remains of the seasonally strongest part of the year, until the slower summer season arrives,” Metal Bulletin Research (MBR) said.

“Europe’s stainless steel makers may find it increasingly difficult to pass on further base price rises. European prices are not exactly cheap now, and total imports [into Europe] continue to increase,” MBR added.

On April 11, the European Commission (EC) announced its decision not to amend its definitive anti-dumping duty of 6.80% on imports of stainless steel CR flat products from Taiwan. A higher level of duty could have provided a boost to European producers.

NORTH AMERICA: Erosion follows US stainless price rises
The US stainless steel industry enjoyed relatively robust demand in the first quarter of 2017, although major producers saw their January base price rises erode by early March.

“We had a solid first quarter,” a distributor based in the US Midwest said in the first week of April.

“Many of my customers have seen record business in the past couple of months,” a US East Coast trader said. “It was a very good first quarter for most companies.”

Major producers in the USA successfully pushed through significant base price rises in January but by March some distributor sources cited mill discounts on certain products.

“We’re seeing lower prices on round bar products,” a US West Coast bar distributor said in the second week of March, blaming “import penetration” for the decline. “It was not an announcement. We found out in late February, but [the mill] apparently lowered its pricing on February 1,” he said.

“The [January base price rise] held in the beginning [of the quarter], but it eroded,” a US Midwest distributor added at the time.

Still, US stainless steel producers, like their European counterparts, benefited from significantly higher raw material prices in the first quarter – specifically, ferrochrome prices.

US domestic producers switched to a new quarterly formula for calculating the chrome portion of their monthly surcharges last year, reportedly to promote market stability.

However, this move drew suspicion from some buyers, as ferrochrome prices simultaneously shot up to $1.65 per lb, locking in the relatively high prices for a full quarter, rather than just one month.

“I wonder if the mills knew something that [the buyers] didn’t know,” a second US Midwest distributor said in the first week of January, regarding the price jump.

US prices could dip

US stainless steel prices could see some erosion in the second quarter of 2017, although market participants were optimistic that they will continue to hover around current levels.

There is a possibility that the increases in base prices seen so far this year could come to a halt in the USA, as well as in Europe, according to Robert Cartman, a senior analyst at MBR.

“Prices could be flat to slightly down at least for the next few months,” Cartman wrote in MBR’s monthly Stainless Steel Market Tracker on March 31, regarding the US market specifically. “This is despite the expectation of continued strong end-user demand and an easing of imported steel.”

Indeed, the US International Trade Commission (ITC) affirmed punishing levels of anti-dumping and countervailing duties on imports of China-origin stainless steel and strip products in March.

However, some industry sources were more upbeat about market dynamics in April-June.

“Prices should remain relatively steady through the second quarter,” another US Midwest distributor said in the first week of April.

“Demand should be steady to incrementally better, plus the US dollar has stabilised, so I don’t think there will be a lot of downward pressure based on currency,” he added. “The real question going into the third quarter will be about chrome.”