In previous newsletters, we have regularly drawn attention to how the price of stainless steel is rising these days. The price rises have been with us for several weeks already and there are expectations that they will continue to increase over coming weeks and months. It is difficult for the moment to predict where the price of stainless steel will peak but there is no doubt it will rise considerably.
But aside from knowing that they will rise, it it sometimes interesting to reflect on the reasons for these prise rises for stainless steel.
The following is my personal view of the market. I would certainly not claim to be an expert in commodity markets but given that I have followed the nickel and SS markets professionally for a number of years, I think I know a bit about it.
Factors determining the price of stainless steel include:
- base price, the price determined by the percentage of stainless steel - let’s say the production price;
- nickel price, which determines the so-called “alloy surcharge”;
- scrap material price, which correlates closely with the nickel price;
- of course, as with any economic model, supply and demand;
- the dollar price as in any international market;
- speculation on the commodities market, at times like the present a factor that should not be underestimated.
Of course, the dollar rate is not to the advantage of prices on European markets. The dollar is on the rise, so stainless steel prices rise too.
However, the main reason for the price rises is the exchange rate for nickel which at the moment is influenced by speculation on the commodities market and which in turn is the reason for anticipated increases in the alloy surcharge over coming months. As I’ve said: some of it is speculation because there are rumours in the market that there will be a shortage of stainless steel in the third and fourth quarters of 2014. We have, by the way, heard this a number of times in the past but there has never been a real shortage, though you never know. So, I’m not currently expecting any real shortages immediately but the alternative to shortages is of course exorbitant prices and I dare not expound on that.
And the uncertainty in the market certainly accounts for some of this. First there is the export ban on unprocessed nickel and other ores such as copper from Indonesia. Indonesia has been prepared for quite some time for this export ban that was ultimately voted through at the beginning of 2014 - see also article under link in attachment. The article suggests that the fall-out for the commodities market would probably be limited, but if it coincides with a number of other events such as those described below, the ban could suddenly become a contributing factor. Let us not forget that Indonesia just happened to be the world’s largest nickel exporter. The country wants to use this measure to make higher-value products itself but it must of course be in a position to do so.
If there is suddenly uncertainty about the situation in Russia, also a major producer of nickel, you’ll feel the storm coming. All of a sudden, the market supply of nickel will become very uncertain but it will be accompanied by the classic hoarding and speculation that you often see at the beginning of these price rises. Expectation that nickel prices will rise then becomes a self-fulfilling prophecy or is even magnified.
Karine De Bie