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European stainless steel surcharges hit four-month highs in October

Highlights

Monthly alloy surcharges on austenitic grades of stainless steel flat-rolled products in Europe are up to four-month highs in October, driven primarily by the recent nickel price rally, according to latest mill announcements.

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But with nickel prices running out of steam and giving back a significant portion of their rise in recent weeks, there is still a risk that the rebound in surcharges may be nipped in the bud.

Surcharge levels moved up in September for the first time in five months and are set to rise further next month, with surcharges for type 304 (4301) flat products announced by Outokumpu, Aperam and Acerinox for October averaging Eur1,225/mt ($1,445/mt), up from Eur1,087/mt in September and marking the highest since June.

Surcharges for molybdenum-bearing type 316 (4401) flat products average Eur1,746/mt for October, up from Eur1,569/mt for September and also the highest since June.



Nickel prices on the London Metal Exchange hit 15-month highs at above $12,300/mt earlier this month, but the market has since lost around 14% of its value and trading back below $11,000/mt.

On a more supportive note, however, ferrochrome prices are increasing once again, with the European benchmark price settled at 139 cents/lb for the fourth quarter, up 29 cents or 26.4% from the current quarter.

The steady decline in surcharges from five-year highs in April took its toll on apparent stainless demand and base prices over the summer, but there were signs of a recovery as the holiday period came to an end, mill sources said.

"Apparent demand took a hit in the early summer," said one, adding that while end-users had returned to the market after the summer lull, "restocking in the distributor sector has taken a bit longer."

Destocking in the face of falling surcharges meant that "we saw a definite downturn in base prices in Q3 -- September is likely to be the low point," he said.

A second mill source agreed. "We're pretty confident we'll be able to increase [base prices}," he said. "September was the bottom, October is neutral, they're starting to go up again from November onwards."

Despite fluctuations in apparent demand, underlying real demand remains healthy, sources said.

"I don't see any real weakness anywhere -- maybe the old story with oil and gas, but even there we're seeing some positive news," the first mill sources said.

Given the euro's sharp rally against the dollar, however -- with the European currency breaking $1.20 this month for the first time since early 2015 -- the market is keeping a wary eye on import levels.

"The strong euro at $1.19-$1.20 is a disadvantage for us, but already in the first half of the year we have seen increased import levels compared to last year, especially in hot-rolled," the second source said.

"It always has an effect when the euro strengthens. The real currency move will impact our market in Q4," the first source said. "On the other hand, the effective price has risen quite distinctly in China."

--Andy Blamey, andy.blamey@spglobal.com
--Edited by Jonathan Dart, jonathan.dart@spglobal.com