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Though nicked by Nickel, stainless still strong: rapidly rising prices for nickel and other commodities have sent surcharges spiraling, but service center executives remain positive about prospects for the specialty metals market.

Article Excerpt
OPTIMISM ABOUT THE STRENGTH OF the stainless steel market is high among service center operators, though not quite as high as the price of the product's components.

Since the start of the year, the price of nickel has skyrocketed by more than 50 percent, causing surcharges to nearly double from below 50 cents per pound to above 80 cents in early June. This has translated into a jump of 15 percent or more in the price of various stainless alloys this spring.

"We have the same concerns as everybody else, as far as pricing of the commodities that go into stainless steel, whether it's iron, scrap, energy, nickel, chrome or molybdenum," says John Zemon, stainless steel product manager for Atlas Steel Products Co., Twinsburg, Ohio. "I've been doing this for a long time, and I've never seen what we're seeing right now as far as nickel pricing and availability of material."

Demand for nickel is outpacing supply, constraining production of stainless steel and other alloys. "The nickel market story is very straightforward--it's all about supply and demand fundamentals--but it's unfolding even faster than we expected this year," says Peter Goudie, Inco Ltd.'s executive vice president of marketing. (Editor's note: At press time, Inco was the target of a $40 billion takeover offer from Phelps Dodge Corp., along with Falconbridge Ltd., another nickel miner, which could alter company projections.)

Inco, a leading nickel supplier with operations in Canada and the U.K., reported record earnings for the second quarter and forecast strong performance for the rest of the year. Inco expects to produce 295 to 300 million pounds of nickel in the second half of 2006, compared with 275 to 280 million pounds in the first half. But it still can't keep pace with demand.

"Previously, we forecast a supply deficit of 5,000 to 20,000 metric tons for the full year," Goudie says. "We are now increasing our deficit projection for 2006 to 30,000 tons."

Goudie points to the continuous drawdown of London...