[SMM Analysis] Hawkish Nomination Triggers Sell-Off in Nonferrous Metals; Pre-Holiday Risk Aversion Leads to Futures Fluctuations in Search of a Bottom [SMM Stainless Steel Futures Weekly Review]

SMM data showed that this week (February 2-6, 2026), as the Chinese New Year holiday approached, the most-traded stainless steel contract (SS2603) was hit by both unexpected macro headwinds and pre-holiday risk-off sentiment, trending in the doldrums. By February 6, the contract price pulled back to 13,780 yuan/mt, down 380 yuan/mt (-2.68%) from the previous Friday's closing price of 14,160 yuan/mt. The week saw sharp fluctuations, starting with a "Black Monday" where continuous plunges in gold and silver prices triggered a "sell-off" in the nonferrous sector, with the most-traded contracts for SHFE tin and aluminum alloys hitting limit-down; stainless steel also briefly touched the limit-down board. Although a corrective rebound followed, the rebound momentum was limited under the dominant pre-holiday risk-off sentiment, and the price center significantly shifted lower.

From a macro perspective, tightening fears triggered by "hawkish" personnel changes were the core driver of this week's plunge. Overseas, the nomination of "hawkish" candidate Kevin Warsh as the new US Fed chair directly strengthened market expectations for monetary policy tightening. This shock sent the US dollar index and US Treasury yields soaring, putting dollar-priced nonferrous metals under pressure from bears. Additionally, the US ISM Manufacturing PMI rebounded to 52.6, indicating economic resilience, leading to a sharp revision in market pricing of the interest rate cut path. Domestically, although the January Manufacturing PMI fell to 49.3%, the central bank conducted 800 billion yuan in 3-month outright reverse repo operations to fully maintain ample liquidity in the banking system, showing clear policy support intentions, which cushioned external shocks to some extent.

From a fundamental perspective, the spot market entered a "winding-down" phase, with inventory building up as expected. The latest SMM data showed social inventory rose to 868,600 mt this week, up about 15,600 mt from 853,000 mt last week, continuing the inventory buildup trend. In spot transactions, traders gradually left for the holiday, reducing market activity to a freezing point, with only sporadic rigid demand restocking during futures rebounds. Despite the inventory buildup, current inventory remains in a low range, and traders face no panic shipment pressure. Coupled with positive expectations for the post-holiday "Golden March, Silver April" peak season, suppliers maintained relatively stable sentiment, and spot prices, though adjusted with the futures, did not collapse.

Cost side and supply side both showed weakness. By February 6, high-grade NPI offers fell to 1,040 yuan/mtu, down 14 yuan from last week, while stainless steel scrap prices also weakened, leading to lower production costs for steel mills. Although some mills began maintenance in February, with planned production expected to drop significantly, this positive factor was offset by a complete halt in downstream demand during the holiday. Under weak supply and demand, cost-side support weakened, but mills' thin profits still formed a bottom-line defense for prices.

Overall assessment: This week's market performance was a result of the combined effects of "hawkish macro shocks" and "pre-holiday capital risk aversion." Kevin Warsh's nomination led to a surge in the US dollar, triggering a revaluation of the non-ferrous metals sector, while capital outflows ahead of the Chinese New Year amplified the decline. Although futures saw a significant correction, low inventory of 868,600 mt and expectations for strong post-holiday demand provided a solid cushion. Looking ahead to the Chinese New Year and the initial period after the holiday, the market will enter a de facto shutdown phase, with short-term movements driven by capital sentiment. After the holiday, the focus of market activity will quickly shift to verifying the "extent of inventory buildup" and "demand recovery," paying attention to whether the increase in inventory is manageable and the pace of downstream resumption of operations. It is expected that post-holiday futures will attempt to stabilize and rebound, supported by cost factors and expectations.