The unexpected revival of stainless steel production in the first quarter is having a dramatic effect on the raw material supply chain, with nickel moving into a deficit and ferrochrome and molybdenum prices up more than 30% since the beginning of the year. The recovery of the stainless sector has been quite surprising especially considering that December 2009 was a poor month as mills cut production in an attempt to be lean and mean coming in to 2010.

A lot of the specialty alloys are doing well, but the real catalyst to the increase in physical premiums has been this about face by stainless at the beginning of the year, a US based nickel trader told AMM. “These guys were completely spooked last year and refused to carry any raw material inventories into 2010. When there order books improved, they had to buy spot nickel and many of the mills faced the stark realization that it just wasn’t available anymore at least not at a cheap price”.

In addition to improved demand, North American nickel supply has been dramatically impacted by the 8 month strike at Vale Inco Ltd’s operations in Canada, which has kept about 10% of global supply off the market. All of this adds up to a global nickel deficit in 2010. It is a similar story in the ferrochrome market where prices are up 43% since the beginning of the year.

IN the molybdenum market, spot ferromolybdenum prices have increased to around $20/lb from $15/lb at the beginning of the year. While molybdic oxide prices have risen to $18/lb from $11.50.lb. Risks to raw material prices remain firmly to the upside for the next several months. Expectations of rising raw material prices are feeding the higher steel prices, causing a restocking cycle by buyers of stainless and carbon steel, this could stimulate further strong rises for raw materials and steel prices in the coming months.

Excerpts from American Metal Market. March 4th, 2010