Nickel futures fell sharply, dragging down stainless steel prices

SHANGHAI, Mar 9 (SMM)—The SMM average price of 8-12% high-grade NPI on March 5 was 1,140 yuan/mtu (ex-factory including tax), down 50 yuan/mtu on the week. After Tsingshan released the high-nickel matte project, SHFE nickel dropped by 13.6% on the week, and the price of stainless steel also fell sharply.

High-grade NPI mainstream prices dropped significantly. The purchase price of stainless steel plants fell to 1,080-1,100 yuan/mtu (arriving at factories, tax included), and transaction price was as low as 1,100 yuan/mtu. However, due to cost pressures, NPI plants were reluctant to sell at low prices, while traders might sell at the prices lower than the original purchase price after hedging.

Nickel and stainless steel prices are likely to rebound this week, which may stimulate inquiry from stainless steel mills. However, the cost pressure on domestic ferronickel plants cannot be alleviated in the short term, and the NPI prices may not rise significantly. On the other hand, if a large amount of hedged cargoes are sold by traders, the NPI prices are likely to be suppressed. The transaction price of NPI this week is still unclear due to the influence of intermediate links, and extreme prices are likely to occur.

NPI mainstream prices dropped significantly amid falling nickel futures prices

Under the impact of the sharp drop in the futures contracts of nickel and stainless steel, the spot market transactions were quiet and the prices continued to fall. 304 cold rolled stainless steel fell by 850 yuan/mt, and 304 hot rolled steel fell by 900 yuan/mt. Some low-cost sources in the market were delivered at lower prices, but the steel mills' guidance prices stood relatively high and the decline was small. Therefore, the difference between the market spot quotations and the steel mills' guidance prices was 1,150 yuan/mt.

The guidance price of 304 cold-rolled low-cost steel was 14,500 yuan/mt, while guidance price of Delong Steel Plant was 15,650/mt. The price of 304 hot-rolled steel was still higher than cold-rolled steel by 200-400 yuan/mt, mainly due to the limited hot-rolled steel resources supplied only by Tsingshan, Delong and Dongte.

Falling stainless steel prices brought loss to mills

At the raw material end, the price of ferrochrome remained high, and the price decline of NPI and stainless steel scrap was little. Therefore, the profit of stainless steel has dropped rapidly. Based on the full cost, the profits on the daily raw material prices dropped from 460 yuan/mt to a loss of 61 yuan/mt.

The guidance price of steel mills for stainless steel remained high under the support of the cost, and the drop in spot prices is limited expect for the low cost resources. At present, due to the continuous decline in prices, the downstream wait-and-see sentiment is strong, and some demand is yet to be released.

Transactions may resume after the price stabilises, which will support the stainless steel prices. The stainless steel futures contract was dragged down by the collapse of nickel prices, and the current price difference exceeded 1,000 yuan/mt between the futures and spots. The contract prices are likely to rebound after the market sentiment stabilises.

For more information on the nickel and nickel markets, please subscribe to China Nickel Weekly.