SHANGHAI, Feb 24 (SMM) – Prices of stainless steel in China are expected to remain subdued in the short term as production cuts may unlikely to reverse the existing oversupply soon on the back of continued delay in the resumption of downstream producers that consume stainless steel.
Normal operations at stainless steel producers during the Chinese New Year holiday drove up inventories of finished products. This, coupled with an absence of significant demand recovery, pushed stainless steel mills and traders to cut their guidance prices and offers.
The average prices of 304 stainless steel fell 250 yuan/mt as of Friday February 21, compared with the start of the week, SMM assessed. Reduced prices squeezed profit margins at producers. SMM calculations based on feedstock inventories showed that losses at 304 stainless steel producers averaged 280 yuan/mt in the week ended February 21, 250 yuan/mt higher than a week earlier.
Sluggish demand and elevated stocks have driven most stainless steel mills to scale back operations, and the output cut may extend till March. A large stainless steel producer in east China has halted operations for a week as of February 20, which is expected to affect the output of #304 series by 20,000 mt. A stainless steel mill in south China also scaled back production since mid-February, which could impact its monthly output by 100,000 mt. Another producer in south China reduced output since February 20 and planned to extend the cutback till March, which is expected to affect production by 80,000 mt. SMM estimates a reduction of 200,000 mt in stainless steel production in China in February.
Stainless steel inventories in Wuxi and Foshan were assessed at close to 900,000 mt in mid-February, up 200,000 mt, or 36% from a month ago. Inventories of #300 stainless steel accounted for more than 500,000 mt, with a month-on-month increase of 33%.
The removal of logistics hurdles allowed the shipments of cargoes from plants to warehouses, while the prolonged suspension of downstream producers barely depleted stocks at warehouses. Some market participants expect the upward trend of stainless steel inventories to extend till next month.