[SMM Analysis] Cost Collapse and Demand Disproval Drag Stainless Steel Futures to New Lows, Post-Holiday Restocking Momentum Short-Lived

SMM data shows that this week (October 12-16), the most-traded stainless steel SS2611 contract extended its one-way decline amid the combined pressure of macro headwinds and weak fundamentals, with the futures center continuing to shift lower. As of the 10:15 close on October 16, the most-traded contract settled at 13,220 yuan/mt, down 395 yuan/mt WoW, a decline of 2.90%, marking the lowest closing level since January 6, 2026, and just 95 yuan/mt above the year-to-date low of 13,125 yuan/mt. This week, the futures market has decisively broken below the 13,700 yuan/mt level, with a single-day drop of 285 yuan/mt on October 15 before consolidating the following day. Futures and spot prices weakened in tandem, with finished product declines exceeding raw material declines—a key feature distinguishing this week from the weeks before the holiday.

From the macro and news perspective, overseas inflation pressures intensified, and risk appetite pulled back notably. US September CPI rose 3.7% YoY, core CPI rose 0.6% MoM—the largest increase in nearly five months—and September PPI came in at 6.3% YoY, the highest since May. Following the data release, market expectations for a US Fed rate hike in October rose to 33%, with officials including Hammack and Daly signaling further tightening. A stronger US dollar weighed on dollar-denominated commodities, dragging the nonferrous metals complex lower. Domestically, policy support remained in place, with State Council follow-up measures rolling out, the Ministry of Finance arranging the use of 550 billion yuan in local government debt carryover quotas, the central bank conducting 700 billion yuan in outright reverse repos, September M2 growing 7.2% YoY, and goods trade imports and exports surpassing 5 trillion yuan for the first time. Under the combination of weak domestic conditions and even weaker external conditions, domestic policy failed to offset the sentiment suppression from external rate hike expectations, and stainless steel futures followed SHFE nickel lower—this week, the most-traded SHFE nickel contract fell 4,960 yuan/mt to 114,810 yuan/mt, a decline of 4.14%, with stainless steel's decline at roughly 70% of that, retaining a degree of relative resilience and outperforming SHFE nickel by 5.8 percentage points cumulatively since September.

From the fundamentals perspective, post-holiday restocking completed inventory destocking, but momentum faded faster than prices. In the week of October 15, 300-series social inventory stood at 572,000 mt, down 21,000 mt from 593,000 mt on October 8, a decline of 3.54%, largely digesting the holiday inventory accumulated during the National Day period, though still above the year-to-date low of 570,000 mt on September 24. The destocking stemmed from the phased release of concentrated downstream restocking after the holiday, rather than a genuine improvement in demand—within the week, this rigid demand was essentially fulfilled, restocking activity quickly receded, inquiries and transactions returned to sluggish levels, and end-users maintained purchasing as needed with a wait-and-see stance. Supply-side pressure also emerged: at the start of the week, mainstream steel mills lowered guidance prices and actively sold, spot quotes followed suit and weakened, traders showed strong willingness to offer discounts, and the market exhibited a "falling prices, shrinking volumes" pattern. On the spot side this week, cold-rolled 304/2B coil average prices in Wuxi and Foshan each fell 75 yuan/mt, Wuxi cold-rolled 316L/2B coil fell 200 yuan/mt, hot-rolled 316L/NO.1 coil fell 150 yuan/mt, 201/2B and 430/2B coils held flat, and Wuxi 304/2B spot premiums against futures widened to the 700-1,050 yuan/mt range.

From the cost and supply perspective, raw materials accelerated their concessions, and the profit recovery process hit a temporary setback. 10-12% Indonesian high-grade NPI delivered duty-paid prices were quoted at 1,022.5 yuan per nickel unit, down 17.5 yuan WoW, a decline of 1.68%, notably larger than the 0.29% weekly decline before the holiday; Inner Mongolia high-carbon ferrochrome's latest weekly average price (week of October 9) was quoted at 7,675 yuan/mt (50% metal content), down 91.67 yuan from the previous week, also ending September's sideways movement. Using the industry's entry into losses on August 28 as the baseline, finished products have cumulatively fallen 5.5% and raw materials 9.2%, with the finished product-raw material index spread narrowing from 5.0 percentage points last week to 3.7 percentage points. Steel mills still maintain positive profits, and production cuts are also underway, but this week's finished product decline clearly exceeded raw material declines for the first time, meaning profit recovery has not translated into price support for finished products; instead, continued raw material concessions have opened up room for cost declines, driving market expectations for the price bottom to be revised downward in tandem.

Overall assessment: rising rate hike expectations and the falsification of peak-season demand constitute a dual suppression, while the cost side not only failed to provide a floor but instead continued to open up downside as nickel prices fell—the combination of these three factors left the futures market without any support point to stop falling this week. Going forward, key factors to monitor include whether the actual magnitude of steel mill production cuts can catch up with the demand gap, when the raw material downtrend stabilizes, and marginal changes in macro sentiment ahead of the US Fed's late-October policy meeting. The most-traded contract is expected to continue its weak bottom-seeking, consolidating on a weak note, with the year-to-date low of 13,125 yuan/mt serving as an important psychological reference. Industrial clients are advised to prudently assess the valuation repricing brought by cost declines, closely monitor actual changes in spot transactions and steel mill production schedules, and maintain prudent operations.