Shortages continue to drive up EU stainless steel prices

Limited availability continues to propel European stainless steel prices on an upward trajectory. The MEPS published European average transaction value, for 304 cold rolled coil, increased by approximately €140 per tonne, in May. Rises of a similar magnitude are anticipated in June. Prices are expected to remain elevated while consumption continues to outstrip supply.

Most European stainless steel producers are now offering 300 series coil for delivery in November/December. However, only limited tonnages are available for this period. Consequently, many buyers are already looking to secure next year’s supply of material. However, it is reported that the mills have yet to open their order books for January 2022.

Furthermore, market participants note a lack of offers from overseas suppliers. Import opportunities from Asia are limited by strong demand in the region, ongoing problems with container availability, and very high freight costs. A fire at YUSCO’s facility in Kaohsiung may cause delays for European buyers awaiting shipment of material from Taiwanese suppliers.

‘Base plus alloy’ mechanism returns

Extraordinarily long delivery lead times pose another problem for buyers, especially for the middle tier stockists and distributors. Many are now questioning how long the current pricing levels are likely to be maintained, when they are required to make purchasing decisions so far in advance. This is most notable when using ‘effective’, fixed-price agreements with their suppliers – a method that the European stainless steelmakers very reluctantly moved to several years ago.

However, current market conditions have enabled the local producers to return to a system of ‘base price plus alloy surcharge’ for new sales contracts. Around half of the MEPS respondents, in May, confirmed that they had bought material using the traditional pricing mechanism. Many also reported that they still have the option to buy, from several producers, using ‘effective’ prices.

Production stoppages

Low inventory levels across Europe are enabling distributors to successfully pass on mill price rises. Many report that resale margins are high. OEMs have been paying whatever is necessary to secure material to keep manufacturing lines running. However, production stoppages are now being taken at a number of end-users, due to the lack of steel and other key components.

If end-users start to delay orders, this may provide some respite for the distributors as the tonnages may become available to them. Nevertheless, material shortages are expected to continue to disrupt manufacturing operations into the second half of 2021.

Furthermore, increases to credit limits throughout the supply chains have been modest, when compared with the recent upturn in steel prices. Consequently, end-users are encountering difficulties with the high cost of steel and other input materials. This, combined with shortages, is starting to affect the viability of many projects.