I work at a manufacturing plant that uses stainless steel and back in mid 2006 we purchased a lot of extra stainless steel in anticipation of the coming price increases. Of course, we never anticipated them to go as high as they did, but it certainly worked out well for us that we purchased as much as we did (and made me look like a hero!). We have since depleted our inventory to a bare bones level, just buying what we absolutely need, since nickel prices are slowly declining.

I imagine this same process has occured at many other stainless steel consumers. With the price for nickel down below $10, this will make August stainless steel surcharges very attractive and I suspect that many companies, like ours, will start to rebuild to a higher level of inventory again.

We experienced a lot of frustration from our customers (imagine trying to explain to a customer why their product has increased in price by 30% in just 6 months) and some have shifted to other materials (plastics, aluminum).

Like Whaler said, a price decline takes time to trickle through the industry. Higher purchases during the summer will make the mills work harder and nickel purchases increase as a result. It takes a while for a price shift to work its way through the production chain... which will eventually cause nickel prices to bottom out and begin to increase if LME inventories drop sufficiently.

Unfortunately, there is a lot of nickel production coming online in the next 2 years, and unless demand keeps pace with production, we could see a further decline in nickel prices in 2009/2010. Last May's price spike, while fun for our stock price, did a lot of damage to the stainless steel industry. Hopefully it recovers.

LBE must work religiously toward lowering their cost of producing nickel to be able to stay profitable in a lower nickel price environment.