Upturn in global stainless steel demand may not come until early 2009

Demand is traditionally weak at this time of year, especially in Europe, as the stainless steel industry's major customers close down for their summer holidays. In 2008, that traditional dip in consumption has been magnified by external influences.

The high price of oil has severely dented new car sales, particularly in the US. Moreover, the increased cost of freight services has added to general levels of inflation and this too has had a negative effect on consumer spending. The so-called "credit crunch" has brought house building to a virtual standstill in many western countries. The downturn in house sales has in turn reduced demand for furniture, kitchens and white goods. The current high price of stainless steel has slowed the growth in its consumption in emerging economies like India and China. The threat from substitution by other materials is greatest in these countries. All of these factors may undermine conventional projections of expanding global stainless use.

Meanwhile, the LME nickel price has been trending downwards since early March. Until this slide is checked, buyers will keep their purchases to a minimum, in the belief that alloy surcharges and, therefore, transaction values will be lower the following month. This speculative restriction on demand has had a negative affect on basis prices.

Many industry players report that underlying demand is reasonably strong and that they expect activity to pick up in the final quarter of 2008. It may be that global economic factors, rather than traditional stainless market fundamentals, will determine whether or not this is the case. History tells us that the last trimester is not the period for a revival in stainless steel consumption. Any upturn is likely to occur in the early part of 2009.