Stainless steel prices are expected to see increases on higher demand, lower supply and higher raw material costs, industry sources told S&P Global Commodity Insights in the week to March 4.

Stainless steel and other steel products have continued their upswing as the global markets recover from the pandemic, with producers having posted their best earnings in recent history last year.

Higher energy prices nevertheless were already an issue in fourth-quarter 2021, with mills having to increase prices. With the additional challenge of the Russian invasion of Ukraine currently, supply of key ingredient nickel was getting limited and pushing energy prices even higher.

The market is already pricing a degree of supply risk as the recent price surge shows, according to a source from a large stainless steel producer.

"According to many analysts, a 30+k scenario is likely if the disruption of supply is fully materialized. We do not have any better knowledge of the price development in a very volatile market," he said.

Norilsk in Russia is the world's second-biggest exporter of Class 1 nickel and covers about 50% of the London Metal Exchange stocks. At present, LME holds 80,000 mt of Class 1 nickel. Normally, it holds around 200,000 mt.

Stainless steel products are mainly produced with 80%-90% scrap and approximately 10% Class 1 nickel, with both products expected to increase together with higher energy costs.

"With no nickel imports from Russia, we think that nickel stocks in the EU can go very quickly under 40,000/mt. In 2006 when the price of nickel exploded to $55,000/mt, the stocks at LME were precisely at this level of 40,000 mt," a spokesperson for Euranimi, the European association of independent stainless steel and aluminum importers, told S&P Global.

"Perhaps now can be even worse: Russia/Belarus/Ukraine export 150,000-200.000 mt/year of scrap with 9%-10% nickel to Rotterdam. In round numbers, this corresponds to a production of 200,000 mt tons of stainless steel," the spokesperson added.

Other sources said although prices can go up mainly on higher energy costs, if the supply of Class 1 nickel becomes particularly tight, "then major producers will become inventive, as they have been in the past to ensure production in support of market demand continues".

"Nickel can be substituted by manganese in a proportion of stainless steels produced and these manganese-bearing grades represent around 22% of global production currently," an analyst said.