Also, what impact is scrap pricing having on steel prices?
What happens when a mechanism that is put into place to help provide price stability is unstable itself? That’s the reality of stainless steel surcharges as of late.
First, a bit of context. The price of stainless steel can fluctuate rapidly based on the raw material used to produce the alloy. Surcharges are added to the base price, typically per pound, as a method to help offset these fluctuations in material cost. Surcharges can vary based on such factors as production cost, yield factor, and the cost of five alloying elements: nickel, chrome, molybdenum, manganese, and iron.
And therein lies the rub—the price of certain alloying elements have been extremely volatile as of late, particularly nickel and molybdenum. This has resulted in surcharges that look like this:
The question now becomes: when will prices stabilize? Let's take a look at each:
Are Nickel Prices Rising?
What more is there to say about nickel's wild ride over the past 12 months? Victim of a historical short squeeze on the LME in March 2022, nickel prices have been on a roller coaster ride, reaching as high as $20/lb. As of mid-February, nickel pries were slightly above $12/lb.
As a result, many traders pulled out of the LME, causing inventories to greatly diminish. Some encouraging news comes from the fact that copper mines in Indonesia are being converted to nickel mines, but we should expect continued volatility until supply catches up with demand.
What is the Price of Molybdenum?
Overall, mining activity for molybdenum has been waning for years, with some arguing that the mining that is occurring isn’t up to the quality of years past.
Then came a record price rise on January 30. On this day, according to S&P Global Platts, a warehousing company restricted the release of roughly 200-300 metric tons of already-purchased units of molybdenum. This forced customers to seek product on the spot market, placing further strain on an already-tight market.
Looking for a certain grade of stainless steel? Check out our inventory here.
The Price Impact of Scrap on Steel
Since November, steel mills have announced five increases on sheet prices, totaling $260/ton. Hot-roll coil prices and cold-rolled prices have risen 15% and 11%, respectively since the start of the year.
So, what’s been the motivating factor for these price increases? For one, mill input costs are increasing, with scrap and iron ore prices rising significantly in recent months.
The Chicago AMM Index, which tracks the cost of scrap, rose an additional $20-$30/ton depending on the grade in February.
At the macro level, the devastating earthquake that hit Turkey in early February has had a distinct impact. Turkey is one of the largest importers of ferrous scrap in the world, and when this country is an active buyer of scrap it tends to support higher prices.
Since the earthquake, Turkey has been absent from the scrap market, and it’s uncertain when they might be an active player again.
Looking for a certain grade of steel? Check out our inventory here.
Consumer Sentiment Summed Up in a Box?
It’s time to check the pulse of the consumer. A good place to start is typically the University of Michigan’s Consumer Sentiment Index.
This measures the current and future health of the economy determined by consumer opinion. The most recent index tells a somewhat upbeat story, with consumer sentiment reaching a one-year high (see below).
But could another unofficial indicator be telling a different story? Cardboard box production and consumption is down. According to data from the Fibre Box Association, shipments of boxes in the U.S. fell by more than 8% in the fourth quarter, with operating rates at nearly 80%.That means a market that is underutilized by about 20%.
So, what does an underutilized box market have to do with consumer spending? Nearly every consumable good spends at least some time in a box, either on its way to the store or our doorstep. Less demand for boxes can often be an indicator of an easing in consumer spending.
Perhaps it's no coincidence that this is largest decline in both production and consumption, according to the organization, since 2009, a year in which the economy
was in the midst of the financial crisis.
