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13 June 2018
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14 June 2018
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Extra alloy and raw materials

It was the beginning of the 80s. The nickel beat the market with a 150% growth in value. Manufacturers started to talk about an extra alloy which, at the beginning of the 90s, became a reference point anchored to reference values for nickel, chrome and molybdenum.

On February 1994, the extra alloy became a law on the stainless steel market. Its value was calculated on the average of the prices of the two months preceding its application; a calculation which was later on corrected in order to take away from the clients the opportunity to choose the delivery month with their most favorable alloy. In the past few years, the calculation has been based on the average of the 20 working days preceding the (non-festive) 20th of every month.

Nickel, chrome and molybdenum… why Nickel? Because its price is more visible, being daily negotiated at the London Metal Exchange. Its value determines the main part of the extra alloy and gets to affect the product’s final price beyond 50%.

Its quotation is in the hands of financial institutions which follow logics that don’t coincide on a temporal level, compared to those deriving from a supply/demand relationship.

An 11-year-step back demonstrates this. We’re in May 2007, the 3-month-contract reaches a USD 49.105 record, after a production deficit was recorded in the last two years, to then suddenly drop in December of the same year to USD 26.128.

In order to reduce the risk connected to the value swings, the products come with covering mechanisms (edging), non-usable from the other workers in the sector (service centers, distributors) because of the imperfect temporal correlation between the purchase moment and the sale moment.

In the last few years, the volatility has been less accentuated and prices have moved in a more contained range compared to the past. The reduction of the production costs, which in turn are connected to the energetic costs decrease, brought the price of the Nickel back to its values of the first 2000s.

It would be desirable for this rediscovered stability to remain in time, as stability creates the condition for market development. The current high stock level in the London Metal Exchange warehouses could be a guarantee in this sense.

 

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