Steel market analyst Steel First has introduced a new Stainless Steel 304 Europe Raw Materials Index to its pricing portfolio. The index reports the cost of the raw materials needed to produce the steel alloy, explains Steel First editor Vera Blei.

The index models the components of a typical slab from European producers and measures the price of the raw materials needed to melt stainless steel of grade 304 in Europe, says Blei.

Further, she adds, the index uses industrywide acknowledged price sources and state-of-the art index methodology.

It does not contain production costs itself, nor the producer’s margin, or any processing costs of the final material.

It is updated weekly on Mondays and published in the Steel First prices database and the historic data of the index is available dating back to 2010, notes Blei.

Slab Recipe

Steel First sister company Metal Bulletin teamed with Munich-based consultancy Mecore to develop the Stainless Steel 304 Europe Raw Materials Index, she highlights.

The index is calculated on the weighted slab components of the corresponding stainless grade and the weights are determined from the region’s average slab recipe.

The specification of each raw material consists of the average chemical analysis, the metallic yield and the relative amount in the overall slab, explains Blei.

The slab composition is dev-eloped by obtaining recipes from primary market participants in the European stainless steel market.

She illustrates that the recipes are averaged and those with raw material components that deviate by more than one standard error from the median component are excluded.

While the slab recipe determines the physical composition of the produced stainless steel grade, the price is determined by Metal Bulletin’s raw component prices. The prices used are Metal Bulletin standard prices, adds Blei.

Index-Based Stainless Price Hedge

he history of the index, compared with nickel prices, which are commonly used as a proxy hedge by participants in the stainless steel market, shows that it correlates strongly, but changes over time. The average weekly volatility of the nickel price changes is 29.37%, while that for the index is 19.96%.

Blei points out that lower volatility leads to lower mark-to-market changes. Further, nickel’s forecasting ability of weekly prices is 204 basis points lower than that of the index.

Therefore, the index compared with nickel alone, yields a much closer track of the market risk included in stainless steel production, she concludes.