Stainless steel market participants were left in uncharted territory when the Russian-Ukraine conflict caused exceptional volatility and the ensuing suspension of nickel trading on the London Metal Exchange, earlier this month. In the weeks following the initial interruption, nickel trading has remained turbulent.

Both buyers and sellers were trying to assess what impact Russia’s invasion of Ukraine would have on the stainless steel market. This is a sector already affected by increasing raw material prices, escalating energy costs and rapidly rising inflation. However, the events that transpired on March 8 left stainless steel selling values in chaos. The frantic early morning session, in which nickel prices soared above US$100,000 per tonne, before dropping to near US$80,000 per tonne, resulted in the LME suspending trading and cancelling that day’s transactions.

Stainless steel supply chain participants were left wondering when trading would resume and at what value. Nickel price volatility creates considerable uncertainties for stainless steel buyers, as it accounts for a substantial proportion of both the European and US alloy surcharge calculations. A resumption of nickel trading above US$80,000 would have resulted in an extraordinary increase in the April alloy surcharges.

Consequently, stainless steelmakers withdrew their quotations and stopped accepting new orders. Asian export offers to European buyers were also suspended, as suppliers in that region waited for price direction. Several purchasing managers suggested that they would attempt to postpone mill deliveries, due in April, to avoid the spike in alloy surcharges. Furthermore, with such turbulence, service centres and distributors have, for now, lost much of their appetite for placing orders.

Conversely, panic amongst the end-user sector led to a flurry of purchasing activity. Some sellers, reportedly, suspended their ecommerce systems for fear of running out of material. However, resale values fluctuated widely, as service centres and distributors no longer knew at what price to sell their stock. Selling values reported to MEPS, for 304 cold rolled sheet, varied between €5.20 per kg and €7.00 per kg, across Europe.

Since March 8, the LME has published several new rules in an attempt to restore normality to nickel trading on its platform. European stainless steel producers were able to calculate and publish their April alloy surcharges, following weeks of uncertainty. Outokumpu’s stainless 304 flat product surcharge jumped to €3251 per tonne – a thirteen-year high. This represents an increase of more than 20 percent, month-on-month. It is an exceptional rise, albeit less than some feared it could have been.

The recent turmoil with the London Metal Exchange’s nickel price has left many in the stainless steel supply chain questioning its relevance in today’s alloy surcharge calculations. Some suggest that stainless steel scrap prices, which are not included in the existing surcharge mechanism, may be more relevant as a key raw material input for the mills.