Futures Drag Stainless Steel Prices Back, Steel Mill Profits Narrow Significantly [SMM Analysis]

This week, stainless steel product prices and production costs pulled back slightly in tandem. Driven by a sharp decline in SS futures, the decline in stainless steel prices widened noticeably, and steel mills' overall smelting margins narrowed significantly. Based on 304 cold-rolled calculations, this week's profit margin was 0.24% using current raw material costs and 0.68% using inventory raw material costs.

Nickel raw material side, high-grade NPI ended its previous streak of gains this week and officially shifted into a pullback after prices stopped rising. During the week, high-grade NPI prices fell under pressure from lower SHFE nickel futures and reports that Indonesia's nickel mining approval quotas may increase. With pessimistic market expectations continuing to build and profit margins at stainless steel mills narrowing, purchasing activity for high-grade NPI remained weak and sluggish. As of this Friday, the delivered tax-inclusive price in China for Indonesian high-grade NPI with 10-12% nickel content fell by 2 yuan/nickel unit to 1,136 yuan/nickel unit.

This week, stainless steel scrap prices remained steady for the time being, but the market was already showing clear signs of coming under pressure. Affected by falling futures and lower finished product prices, market pessimism continued to build. High-grade NPI drifted lower, narrowing the cost competitiveness of stainless steel scrap and steadily weakening cost support. Although higher production schedules drove expectations of a recovery in rigid demand, steel mills' limited profit margins and cautious restocking attitudes provided insufficient support for the market. With multiple bearish factors converging, stainless steel scrap will likely weaken in tandem with futures in the near term and remain in the doldrums overall. As of this Friday, mainstream 304 off-cut prices in Shanghai were flat at 10,450 yuan/mt.

Chrome raw material side, high-carbon ferrochrome prices pulled back slightly this week, with the overall decline limited. Although the market was broadly weak, transactions stayed sluggish, and ferrochrome producers kept operating rates elevated with relatively loose supply, lower overseas chrome ore shipments and firm overseas chrome ore offers, which even showed signs of strengthening, provided some cost-side support to high-carbon ferrochrome prices. As of this Friday, mainstream high-carbon ferrochrome prices in Inner Mongolia fell 25 yuan/mt (50% metal content) WoW to 7,925 yuan/mt (50% metal content).