The stainless steel  market has suffered the worst half year of its history due to the world economic crisis and the industrial activity plunge according to Acerinox. As a reference, the world steel production has dropped by 21.3%.  In Europe it has been 43.2% lower and plunging by 51.8% in the United States.
The uncertainty in face of the length and the depth  of the situation and the strong process of stainless steel inventories reduction in the factories and warehouses have led to an unparalleled demand correction aggravated by the reduction of inventories and the consumption of products which stainless steel content.
The apparent consumption of stainless steel in Europe and in the United States has fallen by more than 40% in this period according to our estimations, which reflect the crisis magnitude,  but it also shows that from these minimum levels there will be an upward correction although the world economic recession would extend further than forecasted.
In the last weeks we have noticed a improvement in the market, which has allowed to consolidate price rises all over the world.

Raw materials
After the drop during most of year 2008, nickel has maintained a level of around 10,000 USD/Mt in the period October-March and since then it has had a strong 60% appreciation. It is currently quoting at levels of 16,000 USD/Mt.

Markets
The nickel price rise in the second quarter and the subsequent increases of the alloy surcharges have led in all the markets the beginning of a process of inventories replenishment, which are still in historical low levels.
The recovery signs noticed in May are consolidated and allow us to consider  to be finished the process of inventories reduction worldwide.
The allow surcharges and the base prices are increasing in all the markets.
The market situation allows us to be optimistic for the next months despite  the seasonal factor of the third quarter.
 
Europe
The alloy surcharges increase from May has helped to reactivate demand particularly in the distribution sector. Nevertheless, final consumption has not had a significant increase.
During six months (November 2008 to March 2009) base prices have had historical low levels and since April they have increased gradually, even further than the rises announced by Acerinox and already consolidated.

America
The American market has been improving. Demand has recovered and the unusual inventories levels in the independent stockists have been replenished.  Like in Europe, final consumption has not recovered yet.
The prices increases announced by North American Stainless and other producers have gradually consolidated.

Asia
The Asian market was the first to recovered and the strength shown by the emerging economies of the area, together with China consumption, have reactivated demand and has allowed improvements in the whole area.

Production
In the first half of the year Acerinox Group melting production amounts to 775,000 Mt, which decreases by 37%  with regard to 2008 like period.  Nevertheless, the quarterly evolution is improving from the fourth quarter 2008.
The first quarter 2009 had the worst market conditions, although its impact had been provisioned in 128.4 million euros at the end of year 2008.
The second quarter  showed the market deterioration in the previous quarter. The higher levels of activity have allowed Acerinox Group to carry out a strong inventories reduction still with higher costs than the market prices, which has led to register a quarterly loss after taxes and minorities amounting to 162 million euros.
Despite expecting positive results for the 3rd quarter, on prudent accounting basis, it has been recorded a provision for adjusting inventories to net realizable value for an amount of 25.7 million euros.
Net sales in the period, 1,292 million euros, is 59.1% lower than the invoiced figure of the first half of year 2008.

Outlook
The demand recovery of the last months, the consolidation of the price rises in all the markets, the order book recent levels, the forecasted production increases in all the factories and the low inventories level, make us feel optimistic for the third quarter.
We think that the worst is over and it is not easy that such situation will happen again, because the inventories levels have been corrected.
All these allow us to face the second half of the year optimistically and we expect that final demand will get reactivated during the fourth quarter.