GLOBAL STAINLESS WRAP: Q2 prices slump on raw materials drop

Lower raw materials prices plagued stainless steel mills across the globe in the second quarter of this year, driving prices down to year-to-date lows.

Asian prices down on weak raw materials, high selling interest
Asian stainless steel prices were weighed down by weak raw material prices and high selling interest in the second quarter.

Nickel prices were under the pressure from increased supplies from Indonesia and the Philippines, and China’s steel mills dropped ferro-chrome tender prices in May and June.

In the second quarter, steel mills and distributors still had high inventories and were actively selling stocked products by cutting prices. However, end-user demand was not stimulated as a result.

China’s domestic stainless prices dropped sharply to a yearly low in the week ending June 15, before rebounding strongly in the week ending June 22 on speculation of a drop in supplies after Jiangsu Delong Nickel Industry failed to supply an expected 50,000 tonnes of stainless slab. However, end-user demand did not follow suit.

In East Asian markets, stainless steel import prices followed China’s local prices as usual. There were fewer deals done in the second quarter compared with the first quarter  amid buyers’ bearish expectations.

Some exporters reported that buyers in South Korea also suffered from a demand drop in finished products.

Chinese customs released March, April and May stainless steel export data in the second quarter, showing that exports of stainless flat steel rose both year-on-year and month-to-month. South Korea, Taiwan and Vietnam remained as the top three importers.

“However, this just reflects the orders exporters took in the first quarter and early April,” an export trader in east China said. “The export data in June and July may not be so high.”

Looking forward, a few senior managers at stainless steel mills in Asia said they expect stainless steel prices to drop further in the third quarter due to high stocks at the mills and the bearish attitude on raw materials prices.

Furthermore, end-market demand is likely to drop slightly in the third quarter compared with the preceding three months due to electricity limits in the summer, a manager at a processing plant in east China said.

However, some other participants are less bearish.

“The price of 11,800 yuan per tonne in the week ending June 15 may be the lowest point in 2017,” a trader in Shanghai said. “Prices may not drop to any lower levels in the second half of the year.”

Indeed, prices could rebound in the fourth quarter, according to several producers who attended Metal Bulletin’s 12th Asian Stainless Steel conference in Hong Kong in June.

As a result, steel mills could return to the profit zone, limiting the probability of production cuts in the next few months, market participants said.

European prices weaken on falling raw materials prices, high stocks
Like the Asian market, stainless steel base prices and alloy surcharges in Europe weakened gradually over the course of the second quarter after a strong first three months of the year, which led to alloy surcharges for April deliveries of stainless steel reaching a five-year high.

Falling nickel prices and a $0.11 per lb quarter-on-quarter drop in the April-June European ferro-chrome benchmark – down to $1.54 per lb – led to an alloy surcharge drop in May, before a subsequent fall in June.

In addition to weaker raw materials prices, high production levels at European mills during the first quarter of 2017 led to high inventory levels at mills and distributors in the second quarter, putting further pressure on prices.

Metal Bulletin’s weekly base price assessment for 2mm, grade-304 cold rolled (CR) stainless sheet reached a peak of €1,140-1,170 ($1,469-1,507) per tonne delivered in Northern Europe on May 5, marking a turning point as buyers, now cautious of high-volume orders, looked to inventory material and imports.

Base prices for 2mm, grade-304 CR stainless sheet gradually fell over May and June to €1,060-1,100 ($1,366-1,417) per tonne delivered in Northern Europe on June 30, as market participants looked to lower their stock levels.

Entering the third quarter and the seasonal market slowdown, alloy surcharges for July have fallen, while a further drop is also expected in August.

The lower European prices could help close “the current wide import arbitrage gap”, according to investment bank Jefferies.

However, weak apparent demand in the summer period will have “rather short legs and will end before the summer [as] stockists will be back in the market with fresh orders by then,” Danish distributor Damstahl said in its June monthly report.

European end-user demand remains relatively robust and is even growing in some sectors, such as appliances and food processing, Damstahl added.

North American surcharges drop, but base prices hold
Lower raw materials costs in the second quarter of this year weighed on US stainless steel prices despite relatively steady demand and solid base prices.

US stainless surcharges were flat or rising in April, but then declined across the board in May and mostly dropped in June amid falling nickel, manganese, copper and molybdenum prices. The downward trend continued in July.

Still, most market participants agreed that a second round of base price hikes implemented by major US producers this year in early April, were accepted by the market. Indeed, AMM reported that base prices held their ground in April, May andJune.

Looking towards the third quarter, the wild card for stainless steel prices in the coming weeks could be the result of the USA’s Section 232 investigation into the national security implications of steel imports.

The Specialty Steel Industry of North America and US speciality metals producers have said that specialty metals should be included in a potential ban on imports, although multiple stainless buyers have asked the US Department of Commerce to exclude their products from the probe.

Some distributors have also expressed fears of a potential period of “panic buying” if stainless is included in 232.

Market participants have also discussed the possibility for a third round of price hikes looming for this year during the third quarter.

“Base prices are going to go up in the next couple of months,” an East Coast trader said, pointing to the sharp drops in July surcharges “mostly due to tumbling ferro-chrome prices” as well as higher prices overseas.

“Today’s price is the lowest it’s been this year. There is a base price increase coming,” he said. “July will be the worst month for many, so if the mills make an announcement in mid-July, maybe people will start buying again,” he added.

“The mills did not fill their order books quickly in early July,” a US Midwest distributor said. “The bigger question is what’s happening with 232. But if overseas prices are higher, then a [base price] increase is almost inevitable .”

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