Alloy surcharges have risen by more than 150% since January. The London Metals Exchange (LME) price of nickel has doubled since March. Controversy exists over whether the surge is due to a supply-demand imbalance or speculation by financial investors. MEPS believes it's due to a structural shortage based on low pricing of LME nickel stocks.
According to MEPS, the hike in nickel prices is increasing the supply of scrap, with world trade in stainless scrap rising by more than 1 million tons over the last four years. But so far this is not having a dampening effect on the price of nickel.
Output of crude stainless in the first half of this year was almost 13.9 million tons - up by 6.5% from the previous year. The International Stainless Steel Forum revealed that most of this increase took place in the second quarter of the year as nickel prices headed up from $20,000 per ton to $30,000 between June and August.
MEPS forecasts reliefIn the short term, MEPS forecasts stainless steel prices moving even higher, mainly due to an unprecedented hike in the price of nickel on the LME during August. However, the company predicts prices will peak around year-end. In the longer term, MEPS expects stainless selling values to decline.
This forecast is based on a decline of the LME 15-month buy price for nickel in the last few days of September to below $24,000 per ton. MEPS believes nickel prices will decline further to around $21,000 in mid-2007. They base their prediction on increasing production from steel mills beyond consumption levels, high volumes of imports from the Far East and a slowing rate of stainless orders from China.
They warn, however, that speculation on the LME makes forecasting nickel prices complex.