As we enter the summer season across the northern hemisphere, almost half a year has passed since the Covid-19 pandemic began to seriously affect Europe and the United States.
One would not really be able to tell that such a dramatic event had occurred by looking at stainless steel prices, however, because they are more or less the same now in late July-early August as they were in February. If anything, they look unlikely to fall in the short term while nickel prices gain upward momentum.
Such stability is very misleading, however, with recent data highlighting the imbalances that have developed in the market following widespread demand destruction.
Even in China, which is often highlighted as a country that has dealt well with the pandemic and has seen its economic activity rebound, stainless steel demand was down by double-digit percentages during the first half of the year across many industries.
As we see in our Asia analysis this month, this has led to a strong uptick in exports.
For the most part, this dynamic is affecting the Asian markets. The European and US markets are increasingly difficult to access for Chinese exporters, due either to the imposition or to the strengthening of trade barriers in these regions, or both – a trend that is almost certain to continue while these economies battle with deep recessions.
European and US stainless steelmakers have other problems to contend with, however. In general, the pandemic has hit these economies harder than those in Asia, with economic activity still notably depressed in most countries.
Stainless steelmakers, particularly those in Europe, have increasingly been compelled to offer discounts to customers in an attempt to retain business. The result is almost certainly a reduction in margins.
Until inventories are worked down and underlying demand picks up again, stainless steelmakers will be in a weak negotiating position.
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