SMM Analysis: Stainless Steel Futures Prices Hit Three-Year Low, Mills Curtail Production To Tackle Severe Losses And Bearish Market Outlook

Stainless steel futures prices fell for four consecutive days and closed down 1.45% at 13,515 yuan/mt as of November 22, which was a loss of 6.77% compared with early this month, a new low since December 2020.

The average spot prices of 304/2B coil bur edge products (Wuxi) stood stable in early November, but declined in mid-month, reaching 13,900 yuan/mt on November 22, down 7% MoM.

According to the latest SMM survey, there was news of low-price transactions of raw materials on November 21. Stainless steel spot market activity appeared subdued as bearish buyers were in a strong wait-and-see mood. Some traders sold off. In Foshan, with rigid demand, stainless steel spot prices stabilised gently. October saw high import volume of high-grade NPI and stainless steel. Costs kept dipping. It is expected that stainless steel prices will remain weak in a short term.

Fundamentals

Supply side: Stainless steel supply in Wuxi and Foshan was stable last week, easing supply shortage of some specifications in Foshan.

In terms of output, with production cuts of some stainless steel mills, in-plant and social stocks of stainless steel declined in November, but still stood high. Outside China, Indonesian stainless steel production in November may hike by 27.78% MoM.

China’s stainless steel production is projected to be around 2.994 million mt, down 4.62% MoM. By series, Series 200 production could be approximately 918,500 mt, down 6.51% MoM; Series 300 might be around 1.4165 million mt, down 3.74% MoM; and Series 400 could be around 659,000 mt, down 3.8% MoM.

The total stainless steel import volume is expected to decrease in October.

India, as one of China's major export destinations of stainless steel, announced anti-dumping policies for stainless steel against China. It is expected that China’s export volume of stainless steel in October may continue to decrease.

On the supply side, due to maintenance and production cuts of stainless steel mills, output and supply of 300 series products diminished, and the overall shipment volume declined. At the same time, downstream demand remained muted. Agents and traders suffered severe losses. Therefore, some agents took a step back from the market, or kept inventory low.

In terms of demand, the overall 300 series demand was weak, but its rigid demand lingered. Cold rolled coil and HRC were consumed compared with early October. Stainless steel futures warrant demand appeared acceptable amid falling futures prices in October. In-plant and social inventory shrank in October. Currently, with falling prices, many deals changed hands at low prices in high-grade NPI market. Therefore, stainless steel costs declined. In addition, maintenance and production cuts may linger in November. Under this circumstance, players were bearish about stainless steel spot market outlook.

In October, social inventory of stainless steel dropped amid production cuts. With upcoming slack season, maintenance and production cuts may continue into late November. Supply and demand will weaken. Stainless steel prices will stay depressed, slowing down a decrease in inventory.

Cost side: As of November 21, the average price of SMM Ni 8-12% high-grade NPI was down 5 yuan/mtu from previous day. Expected supply surplus and high social inventory kept NPI supply ample. Macro market improved, with a rapid decline in the US dollar index having a certain positive effect on commodities. However, the nickel industry chain appeared bearish, offering little cost support for stainless steel market. Supply overhang, bearish sentiment and muted demand from stainless steel will dampen any chance of a rally for NPI prices in a short run.

In terms of ferrochrome, on November 20, offers for high-carbon ferrochrome in Inner Mongolia remained unchanged from the previous day. Ferrochrome market transactions were not active towards the end of November, but ferrochrome producers were less willing to ship at low prices, underpinned by elevated coke prices and strong chrome ore prices. The market was still generally bearish on ferrochrome bid prices from stainless steel mills for the next month.

SMM forecast

Stainless steel production may decrease, while demand will remain sluggish, leading to slower inventory reduction in the off-season. In November, stainless steel mills will continue to cut production to cope with muted demand and severe losses. SMM expects stainless steel prices to remain bearish, tracking swings of high-grade NPI prices in late November.