Price recovery with weak raw materials; stainless steel mill profits marginally recover [SMM Analysis]

This week, the stainless steel spot and futures markets showed a divergent pattern, with finished products recovering slightly while raw materials weakened overall. Steel mills achieved marginal profit recovery by pushing for lower raw material prices. Based on 304 cold-rolled calculations, steel mill profitability was mixed: profit margin based on current raw material costs recovered to 1.24%, turning positive, but profit margin based on inventory raw material costs remained at -1.98% due to earlier high-priced raw materials.

This week, the decline in nickel-based raw materials slowed and gradually stabilized. Earlier, nickel pig iron prices had continued to fall to low levels, and combined with water shortages in Indonesia disrupting production, expectations for supply contraction increased, providing bottom support for prices. Low valuations coupled with supply-side positives drove increased restocking demand from steel mills, while upstream willingness to cut prices weakened significantly, largely halting the downward momentum in nickel pig iron. As of this Friday, the delivered duty-paid price of Indonesian high-grade NPI with 10-12% nickel content in China edged down by only 3 yuan/nickel unit to 1,048 yuan/nickel unit, with nickel-based costs gradually stabilizing.

This week, stainless steel scrap remained weak but stable, lacking momentum for a rebound. Low-level recovery in SS futures and sporadic pre-holiday restocking provided only slight support for finished products, but end-use demand had not materially recovered and trading was sluggish, making it difficult to lift scrap prices. Meanwhile, the decline in high-grade NPI reduced the substitution advantage of scrap, and with September peak season expectations falling short and expectations for October steel mill production cuts rising, steel mills remained cautious in procurement and continued to push for lower prices. Under multiple bearish constraints, scrap showed no trend rebound and remained rangebound at weak levels. As of this Friday, mainstream 304 off-cuts in Shanghai were flat tax-exclusive at 9,700-9,800 yuan/mt.

This week, chromium-based raw material prices pulled back slightly, with cost support continuing to loosen. Mainstream steel mills finalized October high-carbon ferrochrome procurement prices, cutting them by 200 yuan/mt (50% metal content) month-on-month. The larger-than-expected price cut pushed most ferrochrome producers into losses. Affected by lower October stainless steel production schedules and weak demand, ferrochrome demand expectations turned pessimistic. Additionally, high chrome ore port inventories and falling overseas market prices further weakened cost support, driving spot prices slightly lower. As of this Friday, high-carbon ferrochrome prices in Inner Mongolia fell 25 yuan/mt (50% metal content) WoW to 7,750-7,900 yuan/mt (50% metal content).

Overall, this week the stainless steel market showed a game pattern of finished products recovering slightly, raw materials in the doldrums, and steel mill profits recovering. Nickel pig iron stopped falling, steel scrap remained weak but stable, and ferrochrome pulled back slightly, with the industry's cost center shifting lower and effectively repairing steel mill profitability. Going forward, key factors to monitor include the strength of SS futures recovery, end-use demand realization, nickel pig iron supply, steel mill raw material procurement, and changes in ferrochrome procurement prices.