[SMM Analysis] SS futures fell to 13,670 yuan/mt, hitting a new low for the period; stainless steel mills cut production schedules, and the cost support line moved down in tandem

SMM data shows that this week (September 7-11), the most-traded stainless steel contract extended its low-level weak consolidation and hit a further bottom. On Monday (9/7), it closed at 13,895 yuan/mt, then ground lower for two consecutive days to 13,715 yuan/mt on Wednesday (9/9). On Thursday (9/10), it briefly rebounded to 13,860 yuan/mt, before giving back sharply on Friday (9/11) to close at 13,670 yuan/mt, a single-day drop of 190 yuan/mt—the largest decline of the week—marking a new stage low since February this year. For the full week, it fell 200 yuan/mt from last Friday's (9/4) 13,870 yuan/mt, a decline of 1.44%, with the futures trading center continuing to shift lower. Disappointed peak-season expectations dominated market sentiment, as the end-use recovery failed to materialize, market repair expectations were thoroughly dashed, pessimism was released in concentrated fashion, and bearish sentiment continued to build.

From the macro and news perspective, US employment data far exceeded expectations, significantly reinforcing rate hike expectations. US August nonfarm payrolls rose by 162,000, nearly triple market expectations, and June and July nonfarm payroll gains were revised up by a combined 55,000—a stark contrast to last week's preliminary benchmark revision of -79,000. Labour market resilience was far stronger than previously expected, and expectations for US Fed rate hikes clearly heated up. Fed officials' remarks turned hawkish in tandem: Cleveland Fed President Hammack said economic data and business feedback both indicate current monetary policy is not restrictive, inflation remains too high, and action is needed; White House economic adviser Hassett said inflation has been brought under control and rate hikes are on the table. Meanwhile, Trump pressured that if the Fed does not lower interest rates, the US will stop trade with many countries, and argued the US should maintain the world's lowest interest rates. Policy games intensified market divergence over the policy path. Overseas capital flows also showed unusual movements: Norway's sovereign wealth fund plans to cut US Treasury holdings by about $80 billion, and France has repatriated all of its national gold reserves to domestic vaults. Rising rate hike expectations directly pressured US dollar-denominated base metals valuations, serving as the core external pressure behind this week's futures weakness.

Middle East tensions and shipping risks continued to escalate. Iran said it will announce a "no-go zone" in the Strait of Hormuz in the coming days, extending from the US Navy blockade line into parts of the Persian Gulf, while also announcing that an agreement with Oman on vessel transit charts "will be signed in the coming days." Iran's Revolutionary Guard claimed to have struck a US aircraft carrier and destroyer; explosions were reported near Iran's Kharg Island, an Iranian oil tanker was hit by a missile, and Saudi Aramco oil facilities were attacked again. However, actual transit has partially recovered, with UKMTO data showing 59 vessels passed through the Strait of Hormuz in the past 48 hours. On the supply side, OPEC+ maintained October production unchanged, Iraq has raised oil export capacity to over 3 million barrels per day, and Ukraine attacked multiple Russian refining and oil processing facilities. Also worth noting, the Panama Canal warned of possible transit reductions, with daily transits potentially falling from 32 to 27, and rising global shipping costs pose potential disruption to stainless steel export logistics.

Domestically, liquidity and fiscal support continued to ramp up. The central bank conducted a 500 billion yuan outright reverse repo operation on Monday, continued to increase gold holdings in August, and set a new monthly record for this round of gold accumulation; the Ministry of Finance will issue special government bonds to support capital increases totaling 360 billion yuan for eight central financial enterprises. At the industry level, two departments jointly issued the "Notice on Promoting Automakers to Standardize Supplier Payment and Optimize Payment Term Management," which helps improve cash flow for upstream players in the automotive industry chain (including stainless steel parts suppliers). China's logistics demand maintained expansion in August, with prosperity levels further improving; the National Development and Reform Commission (NDRC) arranged to increase Xinjiang coal outbound transport volumes. The transmission of these policies to end-use demand still requires time, and they did not provide substantive support to spot markets this week.

From the fundamental perspective, peak-season rigid demand was absent, and market trading sentiment remained persistently sluggish. Downstream end-users showed no concentrated stockpiling, maintaining a just-in-time procurement model, with destocking efficiency remaining low. Dragged by both continued futures weakness and demand falling short of expectations, stainless steel mills' resolve to hold prices firm continued to waver, with market guidance prices and trader quotes lowered in succession. At the current stage, the market is primarily driven by traders actively selling to reduce inventory, with weak willingness to purchase, strong wait-and-see sentiment among end-use buyers, and persistently subdued inquiries and transactions—spot market weakness is pronounced.

The inventory side shows a stable inventory pattern under weak supply-demand conditions. Notably, steel mills have begun to lower subsequent production schedules, marginally easing supply growth pressure—the first substantive adjustment signal on the supply side in nearly a month. However, end-use rigid demand remains persistently weak, the supply-demand mismatch persists, and destocking efficiency has not improved in tandem. SMM weekly data shows that 300-series social inventory this week (September 10) stood at 585,000 mt, up slightly by 3,000 mt from 582,000 mt in the prior period (September 3), a MoM increase of 0.52%. Overall, it remained basically stable, and last week's modest destocking failed to continue, further confirming the earlier judgment that this round of destocking stemmed from warrant outflows rather than end-use absorption, and lacks trend sustainability.

From the cost and profit perspective, the weak pressure pattern continued, but one marginal change emerged. This week, finished product and raw material prices fell in tandem, with finished product futures breaking down and dragging spot prices lower, while raw material prices followed suit. High-grade NPI fell from 1,110 yuan/nickel unit on Monday to 1,085 yuan/nickel unit on Friday, down 29 yuan WoW (compared with last Friday's 1,114 yuan/nickel unit), a decline of 2.60%, significantly larger than the 1.44% decline in finished products over the same period. This marks the second consecutive week that raw material declines outpaced finished products, with the gap widening from 0.25 percentage points last week to 1.16 percentage points, reflecting steel mills' intensified efforts to pass cost pressure upstream to raw material suppliers. The latest weekly average price of high-carbon ferrochrome (week of September 4) was 7,900 yuan/mt (50% metal content), down 10 yuan from the prior period's 7,910 yuan/mt (50% metal content). As raw material declines were deeper, steel mills' earlier losses did not widen further this week, but the industry-wide loss-making pattern has not been reversed, and production profit pressure persists. More concerning is that the cost support line itself is rapidly shifting lower along with NPI, meaning the cost side can only provide weak bottom support and is unlikely to drive a recovery in futures or spot prices.

Overall assessment: this week, the stainless steel market exhibited a weak game pattern characterized by disappointed peak-season expectations, sluggish end-use rigid demand, futures breaking to new lows, spot prices continuing to follow lower, stable inventory operations, and persistent losses. In the short term, the "September peak season" demand recovery falling short of expectations and spreading market pessimism remain the core bearish factors. Combined with US employment data exceeding expectations and reinforcing rate hike expectations, the weak consolidation pattern in futures is difficult to reverse. While the cost side provides modest bottom support that limits deep downside room, it should be noted that NPI has fallen a cumulative 3.6% over two weeks, and the synchronous downward shift of the cost support line means the absolute level of this support is declining. Going forward, key areas to track include the actual enforcement and sustainability of steel mill production schedule cuts, whether downstream peak-season rigid demand can materialize with a delay, whether the raw material decline can stabilize, the pace of inventory destocking, and the transmission of the US Fed's September rate decision to base metals sector valuations.