Weak futures and spot prices drive raw material costs down, stainless steel cost center declines and profits recover [SMM Analysis]

This week, stainless steel product and raw material prices pulled back in tandem, with market pessimism dominating the entire industry chain. Steel mills actively pushed for lower procurement prices, accelerating the decline in raw material prices and marginally repairing smelting margins across the industry. Based on 304 cold-rolled products, steel mill profitability pressure eased slightly this week. The profit margin calculated on current raw materials was -0.25%, while the margin based on inventory raw materials was -2.56%. Losses on current raw materials narrowed significantly, while inventory raw materials remained under pressure with losses, resulting in an overall improvement in the profit structure.

Nickel-based raw materials extended their weak downward trend this week, with market pessimism continuing to build and cost support further weakening. Steel mills had already completed phased raw material restocking earlier, leaving procurement demand scarce this week and overall trading sluggish. Combined with the falsification of peak-season end-use demand for stainless steel and persistently weak product prices, bearish sentiment spread across the market. Meanwhile, port inventories of high-grade NPI stayed high, and the loose supply pattern remained unchanged, further pressuring spot prices. As of this Friday, the delivered duty-paid price of 10-12% grade Indonesian high-grade NPI in China fell 34 yuan per nickel unit week-on-week to 1,051 yuan per nickel unit, with nickel-based costs continuing to loosen.

Stainless steel scrap prices also moved lower this week, with the cost substitution advantage expanding but unable to offset multiple bearish factors. The US Fed's rate hike bearishness continued to weigh on the futures market, with SS futures under pressure and hitting bottom, dragging stainless steel product prices down in tandem. Steel mills remained mired in losses and showed a strong desire to bargain down raw material prices, directly pulling the scrap stainless steel market center lower. Although the economic advantage of stainless steel scrap over high-grade NPI continued to widen, strengthening its bottom support, bearish fundamentals dominated. End-use demand remained weak, and soft product prices forced steel mills to cut September production schedules, further shrinking rigid raw material demand. Steel mill purchasing interest cooled and market trading was sluggish, making the weak pattern in scrap difficult to reverse under the combined weight of multiple factors. As of this Friday, mainstream 304 off-cuts in Shanghai fell 200 yuan per mt to 9,700-9,800 yuan per mt, excluding tax.

Chromium-based raw material prices remained broadly stable this week, showing resilience amid the weak market. Affected by the weaker stainless steel product market, overall expectations in the ferrochrome market were pessimistic, but downside room for prices was largely limited. High-carbon ferrochrome prices were already at yearly lows, and with recent chrome ore arrival costs remaining high, ferrochrome producers faced significant cost pressure, leaving limited room for further price concessions. Meanwhile, with the market approaching the new round of steel mill procurement announcements in mid-to-late September, industry participants generally adopted a wait-and-see sentiment, and trading turned cautious. Although overseas chrome ore prices pulled back slightly during the week, the impact on the Chinese market was limited, and domestic high-carbon ferrochrome quotes ended the week basically flat. As of this Friday, high-carbon ferrochrome prices in Inner Mongolia were flat MoM at yuan 7,800-7,900/mt (50% metal content).

Overall, the stainless steel market this week showed a game of weaker finished products, divergent declines across raw materials, and recovering steel mill profits. The sharp pullback in nickel pig iron and steel scrap prices lowered the industry's cost center, effectively repairing steel mill losses, while ferrochrome's resilience at lows cushioned the overall decline. Short-term market pessimism has not fully dissipated, end-use demand is unlikely to recover materially, steel mills continue to push for lower prices, the overall weak pattern of raw material prices remains unchanged, cost support for stainless steel stays soft, and prices are likely to consolidate at lows.