Stainless steel surged 3% on expectations of supply cuts

SHANGHAI, Jun 19 (SMM) – Stainless steel futures surged on Friday as expectations of substantial supply reduction grew after several small and medium-sized mills in China announced maintenance plans.

The most actively traded stainless steel contract on the Shanghai Futures Exchange advanced more than 3% to a more than three-week peak of 13,195 yuan/mt in morning trade, on track for the first weekly gain in five weeks.

On Monday, the contract plumbed its lowest since May 7 at 12,570 yuan/mt, around the 12,700 level where prices took a breather from the rally off March’s lows at around the 11,700 mark.

While stainless steel production remains high with most mills maintaining normal operations and there is not a substantial pick-up in downstream demand, it is widely believed that inventory pressure will not be greater than during the period when the country was under stringent COVID-19 containment restrictions. This view encourages shorts to take profits and longs to pile into the market after the prices pulled back to the 12,700 level.

Stainless steel mills including Fuxin in south China and Jinhui in central China have announced plans for maintenance in July as rising costs, a low season for stainless steel consumption and falling prices in muted trades have pushed some high-cost mills into losses.

Source: SMM

Maintenance works at some small and medium-sized mills have little impact to overall supply, but these announcements grow the expectations that more mills will follow suit if losses deepen, easing supply glut and shore up the market.

SMM, however, does not expect a sustained rally in stainless steel prices, as the approaching low season is set to keep spot trades subdued.