European stainless steel prices continue to fall, relative to the costs of the constituent raw materials. The “basis plus alloy surcharge” pricing system has been abandoned for most deals between the producers and the major buyers, such as large distributors and stockists. Nevertheless, the mills continue to publish their alloy surcharges. Therefore, it is possible to calculate a nominal basis price, by subtracting the alloy extra from the “effective price.”
On several occasions, this year, transaction values have risen by less than the increase in the published alloy surcharges, or fallen by more than the decrease in the mills’ announced figures. In either case, the nominal basis price is reduced.
The numbers produced, in recent months, have fallen far below the figures historically thought to represent the producers’ breakeven levels.
The root of this problem lies in the discrepancy between the cost of raw materials – in particular, nickel – and the demand for finished stainless steel. Traditionally, stainless steel production has been the overwhelmingly largest consumer of nickel. Consequently, demand for the alloy has been the major fundamental factor in nickel pricing. In recent times, though, the commodity value of nickel has been affected by anticipated future requirements for the metal, by manufacturers of electric vehicle batteries. This has been compounded by supply constraints, such as the nickel ore export restrictions imposed by the governments of Indonesia and, previously, the Philippines. Consequently, the nickel price increased, this year, in a manner seemingly out of line with activity in the stainless steel industry.
In mitigation, due to their modest production volumes, the European mills have been able to achieve discounts in their outlay for stainless steel scrap. Recent reports suggest that they have been paying less than 60 percent of the intrinsic LME price for the nickel contained in the scrap. Assuming a 60 percent scrap mix in their steelmaking process, this could have recently saved around €300 per tonne of crude stainless steel produced, compared with the cost of paying the full LME nickel price.