Finished steel remains firm while raw materials diverge and weaken; stainless steel cost center shifts down and profits recover [SMM Analysis]

This week, stainless steel mills continued to push for lower raw material prices, leading to marginal improvements in profitability and further easing of industry-wide losses. Based on 304 cold-rolled products, profitability diverged significantly this week. Profit margins calculated using current raw material costs recovered to 1.53%, turning positive. However, margins based on inventory raw material costs remained at -1.87%, weighed down by previously purchased high-cost inventory. Overall profitability pressure has eased but not fully cleared.

Nickel-based raw materials extended their weak trend this week, though the pace of decline slowed notably. With the National Day holiday approaching, downstream trading was sluggish. Concerns over concentrated arrivals after the holiday, rising expectations for production cuts at stainless steel mills, and weakening demand expectations created inventory accumulation pressure for NPI, keeping the overall market in the doldrums. However, supply disruptions in Indonesia due to water shortages and periodic mill purchases for restocking provided some support, effectively limiting the downside for NPI. As of this Friday, the delivered duty-paid price of high-grade Indonesian NPI with 10-12% nickel content in China edged down by only 3 yuan per nickel unit to 1,045 yuan per nickel unit.

Stainless steel scrap prices remained stable and consolidated this week. SHFE nickel futures weakened during the week, but SS futures held relatively firm, effectively underpinning stainless steel spot prices and supporting the scrap market. On the fundamentals side, the weak peak-season recovery and expectations for lower October production schedules at steel mills capped the upside for scrap. However, overall scrap supply remained tight, and stainless steel scrap retained a stable cost advantage over NPI, offsetting bearish demand factors. With no significant selling pressure, the downside was also limited. With bullish and bearish factors in balance, scrap prices struggled to establish a clear trend and continued to move sideways in the short term. As of this Friday, mainstream 304 off-cuts in Shanghai held steady at 9,700-9,800 yuan/mt, excluding tax.

Chrome-based raw material prices pulled back slightly this week, with cost support continuing to weaken. Mainstream steel mills implemented October price cuts for high-carbon ferrochrome procurement, and expectations for extended stainless steel production cuts in October further dampened demand sentiment for ferrochrome, leaving industry fundamentals weak. Meanwhile, overseas chrome ore prices fell rapidly, directly lowering expected ferrochrome production costs and further eroding cost support. Although ferrochrome producers proactively cut production amid sustained losses, the supply reduction was limited and insufficient to reverse the weak market structure. As of this Friday, high-carbon ferrochrome prices in Inner Mongolia fell 100 yuan/mt (50% metal content) MoM to 7,650-7,800 yuan/mt (50% metal content).

Overall, this week's stainless steel market showed a pattern of firm finished steel prices, divergent raw material declines, and recovering steel mill profits. NPI losses narrowed, steel scrap consolidated, and ferrochrome continued to weaken. The industry's overall cost center shifted lower, steadily improving steel mill profitability. In the short term, end-user peak season demand remains weak, expectations for production cuts at steel mills persist, overall rigid demand for raw materials stays subdued, and the logic of steel mills pushing for lower purchase prices remains unchanged, making it difficult for the cost side to provide strong support. Finished steel prices remain firm on the back of resilience in futures, but the lack of demand growth drivers makes it hard to initiate a trend of rising prices. The stainless steel market is expected to maintain a pattern of weak costs, stable and consolidating prices, and modest profit recovery in the short term.