demand for stainless may turn shortly

Demand For Stainless Steel In Western Europe May Turn Round To Raise
= View By Acerinox, Net Profit At This Spanish Company For 1st Half / 08 Decreased By 62%
Acerinox SA, a major producer of stainless steel in Spain, has a view that the demand for stainless steel in Europe is anticipated to turn round to raise from September of 2008. However, according to the settlement of accounts for the first half (January - Jun) of 2008 released on the 21st of July by this Spanish producer, its net profit was Euro 154.6 million (US$245.6 million), having decreased by 62% compared with that for the same period of 2007. Acerinox said that this large decline of net profit was mainly due to a sharp fall of prices for raw materials (mainly nickel). Net profit for the first half of 2008 at Acerinox was initially estimated at Euro 157.2 million.
However, Acerinox implemented the drastic de-stocking of stainless steel products in the first half of 2008 and, consequently, a level of the stocks has lowered to a substantial extent. Therefore, this company said that the demand for stainless steel products is expected to recover from September, when summer holidays will be over. Acerinox added that the demand for stainless steel products in April - June quarter of 2008 had increased by 6% compared to that in the preceding quarter (January - March of 2008).

For a reference, Acerinox has been producing stainless steel at the plants in Spain, South Africa and the USA, and the amount of stainless steel products sold by them in the first half of 2008 came to Euro 3,200 million (compared with Euro 4,300 million in the same period of 2007). Also, EBITDA for the first half of 2008 was Euro 325 million (compared to Euro 755 million for the same period of 2007).

The world production of stainless steel in January - March quarter of 2008 had been maintained on a favorable tone, after having recovered from a depression of the market in the second half of 2007. However, in view of a sharp fall of nickel price started from April - June quarter of 2008, the distributors concerned have held back to purchase stainless steel products and, therefore, the demand for stainless steel products in Europe had been put on the brake. Also, owing to the overproduction of stainless steel in Asia - mainly in China, major stainless steel mills of China started from May of this year to decrease their production and, reflecting this movement in China, South Korean mills also commenced from June - July to reduce their production of stainless steel.

The output of stainless steel in Japan for the first half of 2008 had a decline. The total quantity of crude stainless steel produced by major 7 stainless steel companies of Japan in the first half of 2008 came to 1,872,000 tons, which had a decrease of 10.0% compared with that (2,079,000 tons) in the same period of 2007 and also decreased by 5.5% compared to that (1,981,000 tons) in the second half of 2007 said as the depressed production. These decreases on production of stainless steel in Japan were mainly due to a sharp decline of exports.

The market prices of stainless steel products have been largely influenced by movements of nickel price but nickel price in question has currently fallen to US$20,400 per ton, approaching to a lower level than US$20,000 per ton. The oversupply of nickel started from 2007 and has continued in 2008. However, an analyst has changed an outlook for the situation of nickel supply from a considerable surplus to a slight excess.

According to a forecast on supply and demand of nickel in 2008 made by the Macquarie Group of London, <> supply : 1,450,000 tons and <> demand : 1,440,000 tons, having narrowed a differential between supply and demand. A balance on supply and demand of nickel in 2008 estimated by the Group as of last year was a surplus of 100,000 tons. Also, INSG anticipated that the world supply of nickel in 2008 would be an excess of 70,000 tons.

The Goldman Sachs Group initially forecasted that nickel price in 2008 would be on a level of US$24,522 per ton, but the Group currently changed to be a fall of 15% from the price as mentioned above. At all events, LME nickel price on average in 2008 is anticipated to be a very low level in comparison with that in 2007 ( US$37,089 per ton on average ) and the parties concerned have a view that nickel price in 2008 is thought to move on a weak tone.

Under the circumstances, it is marked to see whether the demand for stainless steel will revive from September as forecasted by Acerinox or not. According to an estimation by an analyst, the quantity of nickel consumed by stainless steel mills in 2007 had a decrease of 21% from that in 2006 and that in 2008 will decrease by 9.5% compared to that in 2007.