Until recently, the prices for nickel showed no sign of abating. Back at an Ariba Supply Watch roadshow earlier this year, one statistic I learned that stuck in my mind was that a truckload of nickel was actually worth more than a million dollars (which represented a percentage increase of over 1000% in the past few years at the time). In the past month or so, the price of nickel has finally come back down to earth (or at least more reasonable levels) dropping around 25% last month thanks to reduced demand. But with a continued manufacturing boom worldwide, how could this be? A recent article in Purchasing indirectly offers an explanation why.
The main argument in the piece is that stainless buyers have been so taken aback by rising metals prices that they’ve been scouring the world for cheaper substitutes.
For those who are not familiar with stainless steel, nickel is a key price driver of the alloy. The CFO of Arcelor Mittal is quoted as noting, "clearly, there is some material substitution going on due to the high nickel prices ... Buyers are opting for alternative, less-expensive materials whenever possible." Purchasing also notes that the "fastest growing type of stainless are those grades absent the nickel content, or with less nickel in the composition. So, while the world bull market in stainless steel should continue past 2010, nickel could be left behind." It's not just smaller manufacturers who have felt the pinch – and looked for lower-cost substitutes. "Soaring prices have forced ThyssenKrupp of Germany, the world's largest stainless steel manufacturer, to reduce the company's use of nickel," the article claims.
The reduced use of nickel in stainless applications is most likely the major drive behind lower prices in recent weeks. How far will nickel slide? We'll have to wait and see, but the use of alterative or substitute materials shows that when procurement organizations worldwide have finally had enough of rising prices and take action into their own hands, that they're the ones who control the market -- not the traders and speculators who shared in the profits from nickels stratospheric climb in recent years.