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Shift in US stainless market leads to rapid stock build

In the period since April, a rapid shift in market fundamentals has occurred, in the US stainless steel sector. Climbing inflation and a weakening outlook for GDP growth are having a negative impact on sentiment, as fears of an impending recession continue to grow. 

The S&P Global US Manufacturing PMI fell from 57.0 in May to 52.7 in June – indicating a significant slowdown in the rate of expansion.

Some manufacturers are choosing to cut their production due to ongoing supply chain issues, whilst others are becoming increasingly concerned about high-cost inventories and a looming economic slump.

Stocks of stainless steel, especially those of hot and cold rolled coil, have been rapidly building over the past few months.

A combination of increased domestic supply and higher-than-normal import volumes has resulted in many stockists and service centres, in recent weeks, describing their inventories as “bloated.”

Imports rise 

US steelmakers have been protected from overseas competition, through Section 232 measures, for several years.

However, restricted local availability, coupled with exceptional hikes in North American stainless steel prices, resulted in a large number of buyers purchasing material from overseas suppliers – especially, during the past twelve months.

Latest estimates suggest that stainless flat steel product imports surged by almost 120 percent, year-on-year, in the first five months of 2022.

Consequently, bookings with US stainless producers have fallen and delivery lead times have shortened.

Order books at Outokumpu and North American Stainless are still open for September.

Buyers, who have been unable to obtain new production from cold rolled coil mills, in recent months, are now being offered tonnages.

Moreover, the availability of excess prime and secondary coils from the producers has increased significantly during the past few weeks. This is a further confirmation of the weakening order books.

Tumbling resale price

As a result of the inflated stocks and reduced buying activity, resale prices and profit margins have tumbled.

Whilst there have been no official announcements by the US stainless mills, buyers report that, in addition to the recent decreases in the monthly alloy surcharge, they detect some erosion in basis pricing for coils.

As businesses attempt to reduce their expensive and overstocked inventories, prices are likely to remain under downward pressure.

US stainless selling values are currently significantly higher than those in Europe and Asia. The MEPS 304 cold rolled coil average for Asia, in July, was nearly US$2,000 per tonne less than the corresponding North American figure.