In the short term we forecast stainless steel prices moving even higher - due mainly to an unprecedented hike in the price of nickel on the LME during August. This gain will impact on transaction prices in October and November.
We believe that the year end will be the peak of the current cycle. In the longer term, we expect stainless selling values to decline. The LME 15 month buy price for nickel in the last few days of September was below $US24,000 per tonne. This compares with a cash price of $US35,000 towards the end of August and a figure of around $US29,000 in recent days.
In fact, we are anticipating cash nickel declining to near $US21,000 in mid 2007. We also anticipate agreements for basis values being at a reduced level in North America and the EU on top of reductions for lower input costs in all parts. This would bring our forecast for grade 304 cold rolled coil in September 2007 to a value approximately $US100 below the current levels and more than $US1300 below the anticipated high point in December this year. However, with the nickel costs currently representing more than 65 percent of the transaction price for austenitic grades, predicting stainless steel selling prices is heavily dependent upon the price of this metal on the LME. With speculators operating in the metals trade, estimating nickel prices becomes even more complex. A $US1000 per tonne change in our forecasted nickel price has the effect of changing the transaction value by almost $US90 per tonne for grade 304.
Over the past six months demand on the mills has been significantly higher than real consumption. We expect order intake on local steel producers to decline in the US and EU as customers re-evaluate their required inventory levels. Furthermore, we anticipate higher volumes of imports in these regions in 2007 - particularly from the Far East. Mill bookings are also likely to slip in South Korea, Japan and Taiwan. Furthermore, the rate of growth in stainless orders will probably slow in China.