Weak Cost Support for Stainless Steel, Persistent Weak Demand [SMM Analysis]

This week, the stainless steel market saw a pattern where production costs and spot prices declined in tandem. Despite a slight increase in the price of high-grade NPI, the prices of high-carbon ferrochrome and stainless steel scrap both weakened. Coupled with persistently sluggish downstream demand, the selling prices of stainless steel products came under pressure, exacerbating corporate losses. Taking 304 cold-rolled products as an example, based on the raw material prices of the day, the cash cost decreased by 36.24 yuan/mt this week, and the loss ratio widened to 5.89%. If calculated based on the cost of raw material inventory, although the cash cost decreased by 109.29 yuan/mt, the loss ratio remained at 5%.

At the cost level of nickel-based raw materials, nickel ore prices remained firm this week, providing solid cost support for high-grade NPI prices, prompting a slight increase in high-grade NPI prices during the week. However, recent news of production cuts by stainless steel mills has been circulating, and the market expects the demand for high-grade NPI to weaken accordingly. Meanwhile, stainless steel enterprises are generally facing losses, with low purchase willingness for high-priced raw materials, further limiting the upside potential for high-grade NPI prices. As of Friday, the price of high-grade NPI with 10-12% grade had increased by 3 yuan/mtu cumulatively, closing at 954 yuan/mtu. In the stainless steel scrap market, prices fell slightly in tandem with stainless steel finished product prices. Compared with high-grade NPI, stainless steel scrap remains at a significant disadvantage in terms of cost-effectiveness. Affected by expectations of stainless steel production cuts, market confidence was shaken, and suppliers' willingness to sell was strong, driving stainless steel scrap prices to continue to weaken. As of Friday, the price of 304 off-cuts in east China had fallen by 100 yuan/mt cumulatively, with the quoted price dropping to 9,850 yuan/mt.

In the cost sector of chrome-based raw materials, despite Tsingshan Group maintaining a flat tender price for high-carbon ferrochrome at its steel mills in June, the market's supply-demand pattern is undergoing significant changes. On the one hand, the stainless steel industry expects production cuts, weakening the demand for high-carbon ferrochrome. On the other hand, high-carbon ferrochrome producers are showing a trend of expanding production, effectively alleviating the previously tight supply situation. Although overseas ferrochrome production is expected to decline, domestic high-carbon ferrochrome producers, leveraging the advantage of low-priced chrome ore raw materials purchased earlier, are highly motivated to produce, driving the ferrochrome market from undersupply to oversupply. With the increasing abundance of spot resources in the market, the willingness of ferrochrome producers and traders to sell has significantly increased. Against the backdrop of a reversal in the supply-demand relationship, high-carbon ferrochrome prices have entered a downward trajectory. Data shows that high-carbon ferrochrome in Inner Mongolia fell by 100 yuan/50 base tons this week, with the latest quoted price at 7,950 yuan/50 base tons.

A comprehensive analysis reveals that the current cost support for stainless steel prices is limited, and the core contradiction in the market still centers on the persistent weakness in downstream demand. Recently, some stainless steel enterprises have successively implemented production cuts due to multiple factors such as losses, insufficient orders, and equipment maintenance and upgrades. However, there remains significant uncertainty as to whether the scale of production cuts can match the extent of demand contraction. Against the backdrop of an escalating tug-of-war between sellers and buyers, stainless steel enterprises are expected to face a prolonged period and numerous challenges in their efforts to restore profits.