Global stainless steel output is forecast to hit a fresh high of 36.4 million tonnes this year, up 2.9 percent from the record set last year, steel consultancy MEPS International said.

"[Although] stainless steelmaking in the established markets of the EU, United States and the Far East remain below the pre-crisis peak of 2006, Chinese production has more than tripled since that time,” MEPS said in a report on Wednesday.

Output in most parts of the world is expected to record either moderate growth or contraction in 2013, but Chinese production is forecast to reach over 17 million tonnes, an increase of seven percent year-on-year. Meanwhile, other steel producing nations in the Far East, with the exception of Japan, are cutting production in response to the Chinese competition.

"With subdued purchasing at home and in traditional export markets, output in Taiwan and South Korea is predicted to decrease this year, compared with 2012,” said MEPS.

"The situation in Japan is improving slightly and a marginal increase in crude stainless steel production is anticipated, to give a total of over 3.1 million tonnes,” it added.

In the US, there are also some positive results in economic indicators. As output in the first half of 2013 has matched expectations, MEPS has upgraded its forecast for full-year US production to more than two million tonnes, up more than two percent from previous year.

Elsewhere in Europe, industrial activity and demand remains depressed.

"The countries in the south of the continent have shown little sign of recovery. Even in Germany, where the effects of the financial crisis were offset by strong sales of cars and other consumer goods to Asia, the economy has slowed.”

Consequently, the steel consultancy has downgraded Europe’s 2013 production forecast to 7.325 million tonnes, down two percent from last year. Meanwhile, overcapacity in Europe continues to plague the region as the deadline for Outokumpu’s divestment of the former Inoxum plant at Terni, in Italy, has been extended.

"The deadline for the sale – necessary to satisfy EU competition rules – has been extended, as the Finnish group have not received any bids that they find satisfactory,” said MEPS.

Production will continue at Terni before any sale is finalised, but facing overcapacity in Europe at least one of the leading players will have to reduce their steelmaking capabilities in the medium term, it added.

Nickel is one of the key raw materials for stainless steel making and the metal is holding around four-year low at $13,605, due to poor global demand.