[SMM Stainless Steel Daily Review] SS Futures Bottomed Out, Stainless Steel Market Inquiry Activity Improved

According to SMM on July 6, SS futures showed an overall pattern of bottoming out. During the Friday night session, SS futures dropped sharply, but after the daytime session opened on Monday, they quickly recovered. By the close, the most-traded SS contract settled at 14,740 yuan/mt. In the spot market, stainless steel quotes in the morning were weighed down by the decline in the Friday night session, with overall quotes on the low side. As futures rallied sharply, spot quotes were also restored in tandem, market inquiry activity picked up noticeably, but transactions were mostly concentrated in low-priced cargoes.

SS most-traded futures contract. At 10:15 am, SS2608 was at 14,725 yuan/mt, up 70 yuan/mt from the previous trading day. Spot premiums for 304/2B in Wuxi were in the range of 245-795 yuan/mt. In the spot market, the average price of Wuxi cold-rolled 201/2B coil was flat; for cold-rolled raw edge 304/2B coil, the average price in Wuxi was flat, and the average price in Foshan was flat; the price of Wuxi cold-rolled 316L/2B coil was flat; for hot-rolled 316L/NO.1 coil, the quote in Wuxi was flat; cold-rolled 430/2B coil prices in both Wuxi and Foshan were flat.

This week, the tussle between macro and industrial logic dominated futures movements. US inflation data pulled back, market expectations for a US Fed interest rate hike further cooled, and the US dollar index weakened, generally boosting valuations for commodities and non-ferrous metals and providing macro support for the metals sector. However, industrial-side sentiment continued to be bearish. Indonesia's nickel ore supplementary quota issue remained unresolved, and the market held strong concerns about ample nickel ore supply going forward. SHFE nickel traded in a low range without an effective rebound. Dragged down by nickel prices, SS futures remained in the doldrums overall, struggling to rise, but downside support was strong at the key 14,500 yuan/mt level. The contract did not break down below this level, moving sideways in a range overall. In terms of spot and inventory, mainstream steel mills' willingness to hold prices firm remained resolute, capping the downside room for spot prices from the ex-factory side. The market has now fully entered the traditional consumption off-season, terminal rigid demand is naturally weak, and with SS futures persistently in the doldrums, overall market confidence in trading was insufficient, with traders showing strong willingness to sell to reduce inventory. Downstream end-users adopted a cautious and heavy wait-and-see sentiment, mainly purchasing on a need-to basis, and on-site transactions continued to be sluggish. On the supply side, news of production cuts from maintenance continued to circulate, and although this round of social inventory stopped declining and increased slightly, the increase was limited, keeping overall inventory pressure relatively low. These multiple factors jointly supported spot prices in holding firm. Cost and profit side, this week, finished product and raw material prices weakened in tandem, and the improvement in structural price spreads drove a MoM expansion in steel mill profits. During the week, the price center for nickel-series raw materials and stainless steel products shifted down simultaneously, with the decline in raw materials larger than the correction in finished products. Coupled with spot prices holding firm on the back of mills' price support, profitability for finished products recovered. This week, overall smelting profits for stainless steel mills expanded somewhat, and the industry's profitability environment improved marginally. Overall, the stainless steel market this week exhibited a two-way pattern of macro support and industry pressure, with a clear divergence between weak futures and firm spot prices. Sluggish end-use demand during the off-season and thin transactions were the core bearish fundamental factors, while steel mills holding prices firm, maintenance expectations, and low inventory continued to underpin spot prices. The decline in raw material prices helped improve steel mill profits, easing cost pressures on the production side. In the near term, the market is expected to trade around Fed policy expectations and Indonesian nickel ore policy developments, with futures moving sideways and spot prices remaining firm. Going forward, focus on the US dollar index trend, the implementation of Indonesia’s nickel quotas, key support levels for SS futures, changes in downstream off-season rigid demand, and steel mill maintenance and commissioning progress.