[SMM Stainless Steel Daily Review] Geopolitical risks cool, stainless steel futures strengthen.

SS Futures – The Most-Traded Contract. As of 10:15 a.m., SS2607 was quoted at 14,855 yuan/mt, up 150 yuan/mt from the previous trading day. Spot premiums for 304/2B in Wuxi stood in the 215-765 yuan/mt range. In the spot market, for Wuxi cold-rolled 201/2B coil, the average price remained flat; for cold-rolled unedged 304/2B coil, average prices in Wuxi and Foshan both held steady; for cold-rolled 316L/2B coil in Wuxi, prices rose by 150 yuan/mt from the previous week; for hot-rolled 316L/NO.1 coil, offers in Wuxi stayed flat; and cold-rolled 430/2B coil prices in both Wuxi and Foshan remained stable.

This week, stainless steel futures and spot prices both came under pressure and moved lower. Macro headwinds from outside China dominated market sentiment, and pessimistic mood spread rapidly during the off-season. Industry expectations for the outlook weakened, end-user caution deepened, rigid demand remained persistently sluggish, and traders concentrated on selling at discounts to cut inventory. On the futures side, macro factors from abroad were the core driver. US non-farm payrolls data significantly beat expectations and the unemployment rate stayed low, leading the market to postpone or even cancel expectations for US Fed interest rate cuts within the year. The US dollar index strengthened to a near two-month high, broadly weighing on the valuation of the nonferrous sector. Dragged down by this, SS futures fell continuously in a one-sided decline, quickly breaching the previous support level of 14,500 yuan/mt, as bearish sentiment was released in full, further weakening sentiment across the entire industry chain. Regarding spot prices and inventory, the pace of spot price declines this week noticeably lagged that of futures, highlighting a divergence between the two. The sharp drop in futures weighed heavily on market mentality; traders’ willingness to sell and destock increased markedly, and low-priced cargoes continued to emerge in the market. Amid the traditional consumption off-season, downstream rigid demand lacked momentum, buying support was insufficient, and transactions were only modestly driven by low-priced cargoes, leaving overall performance subdued. On the supply side, some steel mills gradually carried out production cuts and maintenance, leading to a marginal contraction in industry supply. Coupled with traders actively clearing inventory, total social inventory continued its destocking trend and pulled back slightly, despite weak off-season demand. On the cost and profit side, stainless steel raw material prices largely resisted declines this week, diverging from the trend in finished steel prices. High-grade NPI saw limited declines, while stainless steel scrap and high-carbon ferrochrome prices remained firm, providing relatively strong bottom support from the raw material side. However, spot prices continued to fall. Weakening finished steel against rigid costs directly squeezed steel mill profit margins. Profit calculations show that the current profit margin for steel mills, based on spot raw materials, pulled back to roughly 1.9%. Hindered by earlier high-cost inventories, the profit margin based on raw material inventory costs narrowed further to 0.84%. Overall profitability contracted significantly, potentially strengthening steel mills' willingness to initiate further production cuts later. Overall, this week's decline in futures turned sentiment bearish, with off-season rigid demand remaining weak. Although steel mill maintenance and active destocking by traders drove a slight decline in inventories, providing some support to spot prices, this was not enough to reverse the broader weakening trend. Firm raw material prices formed a floor under spot prices, limiting deep downside, and the short-term market will likely persist in a pattern of weak futures, resilient spot prices, and thin trading. Key areas to monitor going forward include the trajectory of US Fed policy expectations, movements in the US dollar index, strength of support for SS futures, sustainability of downstream rigid demand, and progress in steel mill maintenance-led production cuts.