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US stainless prices to take a big jump in October

US stainless prices are leaping in October with strong upward momentum coming from many different avenues – two back-to-back base price increases, a big jump in October surcharges, and even a rise in polishing extras.

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While demand is decent, and perhaps picking up a little, price increases are largely cost driven, with the very volatile ferrochrome quarterly benchmark and nickel prices providing the most lift for October. Skyrocketing prices for graphite electrodes has been a contributing factor as well. All indications are, however, that November will be a different story with chrome prices now set for the rest of the year and nickel prices easing notably over the past few weeks. Another base price hike, meanwhile, would likely tempt imports too much.

With their September base price increase meeting virtually no resistance and manufacturing and operational costs continuing to increase – largely due to skyrocketing carbon graphite prices – North American Stainless led a move to raise their base prices again in October, which has been followed by most of the other leading US flat-rolled stainless producers.

The September increase not only raised base prices, but polishing extras were also raised through a 10 percentage point reduction of functional discounts.

The shortage of electrodes, meanwhile, temporarily got worse when Gulf Coast refineries battened down the hatches when Hurricane Harvey made landfall late in August. Above all, however, the combination of the shuttering of about 300,000 tonnes of electrode production capacity in China as well as tight supply for the needle coke used to make those electrodes has led to sharp increases in costs for stainless producers. Already electrode prices have jumped to between $22,000 and $40,000/tonne from only about $2,000/tonne last year. And with availability expected to remain tight, and possibly even tightening further, there is potential for it climb even higher.

Metal Bulletin Research believes that the latest price hike, which is set to take effect November 1, also has a good chance of being paid in its entirety, especially given the chance that alloy surcharges could correct slightly next month. It involves raising the base prices of cold rolled 300-series, 200-series and 400-series stainless by reducing their functional discount by 2 points as well as increasing prices for 3/16 in. or thicker continuous mill plate (CMP) by $40/short ton and prices for CMP with thicknesses of under 3/16 in. by $80/ton.

Long product producers Carpenter Technology, Universal Stainless and Electralloy have also announced that they would be raising base prices by 3-8% on non-contract orders, effective late September/early October depending upon the mill. This has been prompted by a combination of higher manufacturing costs and to ensure that they have the capital necessary to reinvest in their operations.

We doubt, however, that any further base price increases are likely this year as domestic transaction prices are already getting to the level where they could encourage greater import penetration.

October surcharges see an across-the-board jump

The primary impact upon US stainless transaction prices, however, is raw material surcharges, which jumped anywhere between 20 and 24% in October vs. the previous month. This comes on the back of a 26.4% rise in the fourth quarter European charge and high-carbon ferro-chrome benchmark price, a 12.6% increase in the nickel price and a 4.9% rise in molybdenum over the past month.

As result, October alloy extras are up for austenitic and ferritic stainless steel grades alike. This includes a 24% month on month jump for grade 304 stainless to 61.36 cents/lb.; a 20.7% increase in adders for type 316 stainless to 79.84 cents/lb., a 21.9% rise for grade 201 stainless to 47.24 cents/lb., a 24.0% leap in surcharges for grade 420 stainless and a 19.6% month on month increase for grade 409.

While the jump in chrome prices clearly had a big impact for October, it should be noted they have been extremely volatile all year, ever since US mills started to use quarterly vs. monthly pricing to determine their chrome surcharges. A jump in nickel prices has also contributed. This has been caused partly by increased investor interest in the entire base metals complex and partly due to market fundamentals. These include speculation that the Philippines could ban open pit mining, as well as rumoured plans by certain companies to possibly idle some nickel mining capacity.

In the last few weeks however, nickel prices have eased somewhat. If that trend continues it is very likely that US stainless alloy surcharges could either stabilize or retreat slightly in November, especially with chrome prices staying put through the end of the year.

Distributors continue to buy for need despite rising prices, decent demand

Even with prices up and demand remaining strong and even improving slightly, OEMs and distributors both are doing limited speculative buying. Currently, service center stainless steel inventories are fairly well balanced with 2.5-3.0 months of supply on hand, basically unchanged over the past few months. With domestic lead times relatively short – only four to six weeks – distributors see no reason to make speculative buys, especially with year-end quickly approaching.

They are also being careful not to be too lean, especially given the possibility that in the next month or two there could be some temporary increase in demand related to the recent hurricanes. With nearly 1 million cars damaged just by Hurricane Harvey, car sales picked up for the first time all year in September and that momentum is expected to continue through early November. Likewise home appliance shipments, which were up 2.5% year on year in August, will likely increase as people rebuild and replace those that had been damaged.

This piece was brought to you by Metal Bulletin Research and published in the Stainless Steel Market Tracker – a comprehensive service providing global market analysis and forecasts for the whole stainless steel industry.

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