Stainless Steel Prices and Nickel News, Prices, LME Nickel Price, Stainless Steel News – Molybdenum – World Metal Pricing and Market Conditions

  Week in Review – (we use a different source than we use for daily updates) After a week that ended surprisingly 2-1/2% higher than it had started, nickel returned to its “corrective mood” this week. On Monday, 3 month nickel opened at $15.80/lb, saw a weekly high of $15.99/lb, a low of $15.10/lb, and ended at $15.14/lb. Markets opened on Tuesday at $15.13/lb, saw a high of $15.22/lb, fell to $14.53/lb, and ended the days trading at $14.65/lb. Wednesday saw nickel begin trading at $14.65/lb, also its high for the day, fall to $14.15/lb, and end at $14.17/lb. On Thursday, market opened at $14.29/lb, saw a high of $14.40/lb, a low of $13.98/lb and end at $14.11/lb. And on Friday, the market opened at $14.22/lb, reached a high of $14.30/lb, fell to as low as $13.79/lb, and ended the week at $13.86/lb. Having closed last Friday at $15.47/lb, nickel ended this week 11.6% lower. And 16% lower than it did the first Friday of this month. For the year, 3 month nickel has fallen below its January 1st start of $15.10/lb, by 8.9%. However, the price of nickel is still 120% higher than it was on January 3rd of 2006, which was the beginning of its fourth bullish year.

Credit Suisse says to watch 3 reports this week, that usually have an effect on base metals trading sentiment. On Monday, Japan will release its Industrial Production data for June. On Wednesday, China releases its manufacturing PMI for July, and the US will release ISM manufacturing data for July. Not sure what good any of these reports can do for nickel, as it is slowly burying itself in negative sentiment. But no one ever knows what spark of positive economic news might end a price correction. We tend to think that LME trading has its eyes fixated on LME inventory figures each day, as they alone offer the best barometer for the worldwide supply/demand picture. At least that is what they were telling us when they were running the price up to $23.50/lb, just a few months back. The U.S. stock market took a step back this week, and with it, many of the mining stocks. If you read this site regularly, and are an investor, we suggest you spend some time at the Investor Village RNO board, where many base metal miner stock traders congregate. It is not nickel specific, but the forum members keep the conversations on-topic, the operators delete spam immediately, and the members keep others from getting too personal. You can find this board here.

Speculation has shifted from how high can nickel go just a few months back, to how long the correction would last, to how low will nickel fall. We still feel $12/lb is a figure that stainless steel producers can grudgingly accept. But even if we see the price fall that low, if nickel inventories continue to rise, the pressure to go lower, will remain strong. We had some regular readers give us the $13 – $14 range early on in the correction, and we are now into that range. We have yet to see anyone forecast the price to fall lower than $11.34/lb though. Considering prices started 2006 in the high $6/lb range, the price has a lot of room yet to move, but their seems to be a consensus growing, among those willing to make a prediction, that we may be approaching a possible turning point. In our opinion, the tension on the rubberband is slowly tightening, and while we felt by mid-August it might snap, there is evidence it may take a little longer. Stainless steel producers are not buying anymore than they have to. This isn’t due to any top secret conspiracy to bring the price down, it is ‘because’ the price is coming down.

For those of you who might not be familiar with some of the why’s and why not’s of the market, we will attempt to furnish a very basic example. Let’s use a very simplistic equation to explain a complex situation. You are a stainless steel distributor and you have in stock, 50 pieces of 304 stainless steel sheet for your customers. Each weighs 200 pounds. Stainless steel producers sell you stainless with a fixed cost per pound, and a monthly surcharge. The surcharge is determined by taking the average monthly cost of the raw materials, and seeing how far they are over the established base cost. For this explanation, let’s call our base charge $1/per pound for 304 stainless steel (this is an example only to make the mathematics easier). At $1/lb, each of these sheets has a cost of $200 ($1/lb X 200 lbs). But we need to add the surcharge. Let’s use some real surcharges for this demonstration. Let’s say you bought 50 of the sheets back in May. In May, the surcharge by AK was $2.01/lb. Add the $1/lb base charge, and your cost is now $602/per sheet ($2.01 + 1.00 X 200lbs). Nickel started falling in May so you held off to buy your next 50 sheets till July, thinking your price would come down. It makes sense, right? Wrong! Back to our surcharge chart, and we see AK is charging a $2.28/lb surcharge for 304 in July. Say what? That’s right, nickel has fallen by over 1/3, but the surcharge went up. Why? Because stainless steel producers use this months average metal prices, to determine a surcharge for two months later. The average price for nickel in July, will affect the surcharge for September. The surcharge for this month, was determined using the average price of the materials back in May. You remember May, when nickel hit a record high of $23.50/lb. This formula helps customers when prices are rising, but hurts when they are falling. Now if AK is charging a $2.28/lb surcharge for July, and already announced a $1.89/lb surcharge for August, and if you follow the price of nickel, you know they are going to go down further in September, when would you buy? The same 50 sheets that you paid $30,000 for in May, would cost you $32,800 in July, and will cost you $28,900 in August, and less in September. Now seriously, knowing this, if you were the distributor, and had to keep some sheets in stock to protect your customers JIT requirements, would you not hold off as long to buy as you possibly could? And remember, producers produce, not stock. You have a lead time to worry about with the factory, but your customers expects you to stock them. Conspiracy? Not hardly, it’s smart business. Because if you buy wrong, and your competitor buys right, guess who can offer your customer a better price – and still make money? For the stockholders out there….if your stock was worth $20 today and you knew for a fact it was going to be worth $17 in September, would you go out and buy more today(those who trade short exempted)? Unlike those who trade in stock, the stainless steel distributor can’t just dump all their inventory (shares) and open (invest in) a hamburger stand until prices find the bottom before they re-open for business(re-invest). And if you don’t think the distribution market matters to producers, Outokumpu stated in this weeks quarterly report, that distributors make up 50% of their business. Much of the same principle applies to the producer. With their distribution markets slowing down overall demand, they must worry about the value of their nickel inventories. These guys don’t order nickel by the pound, they order it by the tonne. If you have 20 tonnes of nickel sitting at your factory, and you bought it two weeks ago, it has already lost roughly $36,000 of its value. Maybe this will quell some of the conspiracy murmurs.

  Copyright/courtesy Dow Jones – “LME nickel prices, under “relentless pressure,” could drop below $30,000 a metric ton with the next support level seen at $25,000/ton, Commerzbank says. Adds $30,000/ton is “psychologically significant.”

  Manufacturing activities slowed – “Manufacturing activity in China expanded at a slower pace in June, according to a survey of purchasing managers released today.” – more here

  Base Metals Bears – (excerpt from article) “They may be right, in the short term. But a year down the road, the base metals are going to be trading much higher than they are today.” – more here

  Quotes – Economic Times – India “The alloy surcharges will come off at some stage, probably like September or October and that’s simply what people are waiting for,” said analyst Michael Widmer at Calyon.” “We see some pushback from customers because they do not want to absorb any more metal with a high surcharge attached,” said David Humphreys, chief economist at Russia’s Norilsk Nickel.

  National Mining Association Mining Weekly – pdf here

  Buoyant nickel price lifts debt-free Jubilee to a record profit – “West Australian nickel miner Jubilee Mines is set to announce a record annual profit late next month after producing 8633 tonnes of nickel for the 12 months to the end of June.” – more here

  BRIC demand key driver for commodities – “Strong commodity demand from BRIC countries is pushing the natural resources sector forwards, according to BlackRock.” – article here

 (comment – here is the article we mentioned Friday, now a respected Chinese metals paper has picked it up) Guard against low-quality iron nickel stainless steel market disruption – “As early sustained high nickel prices to low-grade laterite ore for the production of raw materials containing nickel buffeted by hot iron.” – poorly translated article here (still looking for thoughts from nickel/stainless engineers)