Given stainless steel's relatively fragmented end-user profile, we would expect any change in broader industrial activity to be relatively quickly reflected in the metal's demand fundamentals. However, consumption trends in stainless steel tend be dominated by raw material price driven phases of inventory accumulation and drawdown, making it difficult to decipher real demand trends, especially in the short-term. Further, in Europe, and, as we discuss below, in the US, the vagaries of the alloy surcharge mechanism can further distort buying activity. The current market is a case in point: at the beginning of the second quarter, rising raw material prices, particularly nickel, meant significant prospective alloy surcharge increases. As a result, there was undoubtedly increased intermediate and end-user buying activity during April, beyond that justified by real demand fundamentals and some necessary replenishment of working stocks. Anticipating this, it is perhaps no coincidence that European mills pushed melted production to an annualised rate of almost 8.5mt during March, the highest level since May 2008.
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