Most-Traded Stainless Steel Contract Hit Four-Month Low, Steel Mills Are Expected to Increase Production, Inventory Digestion Remained Challenging [SMM Commentary]

Yesterday, the ferrous metals series saw a broad decline, with the most-traded stainless steel contract hitting a new low at 13,650 yuan/mt since April 9, 2024. By the close of the day session, it had fallen by 0.97%, marking five consecutive days of decline. Fundamentally, supply is expected to be strong, downstream made purchases for rigid demand, and inventory remained high, which are all bearish for stainless steel prices.

Spot Prices

According to SMM, since August, the average spot price of 304/2B uncut edge coils (Wuxi) has shown a weak trend, reported at 13,975 yuan/mt today, down 0.18% from the previous day. Last week, stainless steel arrivals were high while transactions were weak, making short-term price increases difficult, with some prices possibly dipping slightly.

Supply Side

Production: According to an SMM survey, national stainless steel production in July was about 3.1838 million mt, down 1.44% MoM and 2.13% YoY. Entering August, due to the traditional "September-October peak season" demand expectations, stainless steel mills still chose to increase production to prepare for September. For August, 300-series stainless steel production is expected to increase by about 80,000 mt, up 5.16% MoM, while 200 and 400-series stainless steel production is expected to decrease by 2.3% and 4.92% MoM, respectively, due to inventory backlog and continuous price decline. From the perspective of agent orders, August orders are not ideal, with no stocking plans from downstream in advance. Since August, high-grade NPI transaction prices have risen to over 1,000 yuan/mtu. With stainless steel prices hard to rise and losses expected, production increase still faces certain difficulties.

Inventory

According to SMM, recent domestic stainless steel total inventory, by region and series, remains high. As of August 8, inventory was 980,900 mt, up 1.74% WoW but down 0.13% MoM. With the expectation of increased stainless steel production in August, social inventory is expected to remain high, making digestion challenging.

Demand Side

According to an SMM survey, currently, downstream makes purchases for rigid demand.

SMM Outlook

Overall, the supply side saw high scheduled production due to the "September-October peak season," while the demand side remained essential need. Inventory is currently at a high level, and short-term digestion is expected to be under pressure. SMM expects the most-traded stainless steel contract to fluctuate within a range in late August, with limited downside room but lacking upward momentum.