Rising Costs Supported Spot Cargo, Stainless Steel Mills’ Profit Margins Narrowed [SMM Analysis]

This week, stainless steel spot prices strengthened, and production costs rose in tandem, further squeezing stainless steel mills’ profit margins. Taking 304 cold-rolled products as an example, based on raw material prices on the day, the full-cost profit margin this week was -0.67%; calculated using raw material inventory costs, it reached 1.69%.

On the cost side of nickel-based raw materials, nickel ore prices were currently at elevated levels, and NPI producers faced relatively high cost pressure. Although stainless steel mills’ acceptance of high-priced high-grade NPI had been low recently, with few deals concluded, NPI producers and traders still held prices firm. With stainless steel production surging significantly, supported by relatively strong high-grade NPI costs, its prices were expected to continue to hold up well. As of this Friday, high-grade NPI with a grade of 10-12% rose by 3 yuan per nickel unit to close at 1,088 yuan/nickel unit.

In the stainless steel scrap market, stainless steel scrap prices strengthened this week, mainly supported by the recovery in work resumption, catch-up demand, and cost advantages. In March, the market fully resumed operations, yard shipments accelerated, and downstream inquiries and deal activity increased, with active trading sentiment. Although SS futures and high-grade NPI saw their gains slow down and raw material sentiment cooled somewhat, stainless steel scrap had lagged before the holiday and saw a concentrated catch-up rally this week; coupled with higher steel mills’ production schedules, peak-season expectations, and demand for economical substitution, prices received strong support. However, the downstream recovery pace was relatively slow and finished product inventory remained high, limiting the upside. Overall, the market showed a pattern of work resumption recovery, increased transactions, and catch-up price gains. In the short term, there was still upside room, but limited; over the longer term, attention should be paid to the recovery of end-use demand. As of this Friday, the price of 304 off-cuts in Shanghai rose by 600 yuan/mt, with the latest quote at around 10,250 yuan/mt.

On the cost side of chrome-based raw materials, high-carbon ferrochrome prices strengthened and moved higher this week. Although the tender prices for high-carbon ferrochrome at major stainless steel mills in March remained stable, entering the traditional peak consumption season of “Golden March and Silver April,” stainless steel mills significantly increased their production schedule scale, and demand for ferrochrome rose in tandem, with retail spot supply of ferrochrome clearly tight. In addition, recent news that overseas ferrochrome producers were about to resume production, along with geopolitical conflicts pushing up the ocean freight rate, drove overseas market chrome ore prices higher, further lifting ferrochrome production costs and ultimately boosting retail ferrochrome prices. As of this Friday, high-carbon ferrochrome prices in Inner Mongolia rose 50 yuan/mt (50% metal content) WoW to close at 8,600 yuan/mt (50% metal content).