Macro and Fundamentals Sides Weaken, Stainless Steel Futures Drop in Night Session [SMM Analysis]

As of the last day of August, the most-traded stainless steel contract plunged to 13,685 yuan/mt in the night session. Last week, the SS10 contract fluctuated upward. Previously, it had fallen below the cost line, and the recovery in the non-ferrous metals sector led to an upward correction in stainless steel. It reached a high of 13,930 yuan/mt, but faced significant upper resistance, leading to several pullbacks. Last week, open interest significantly decreased, and trading sentiment was lukewarm. On Friday, both bulls and bears remained in a standoff. From a macro perspective, although a US Fed rate cut has become a high-probability event, the actual situation remains unclear. The decline in overseas non-ferrous metals, especially nickel, the domestic ferrous metals series, including coking coal, and glass, have all negatively impacted stainless steel.

More importantly, China's August manufacturing PMI fell to 49.1%, down 0.3 percentage points MoM, indicating that demand may still be further declining. Although the MIIT issued a notice on suspending steel capacity replacement work, requiring all regions to suspend the announcement of new steel capacity replacement plans from August 23, 2024, and to revise the steel capacity replacement methods, this remains a bullish factor but has no immediate impact on stainless steel supply. From a fundamental perspective, the oversupply of stainless steel still exists and is worsening: last week, steel mills were expected to ship over 10 vessels, approximately 60,000 mt. Due to persistently high social inventory levels that are difficult to digest, warehouse warrants converted to spot cargoes further suppressed spot transactions. Stainless steel mills' September scheduled production remains high, with crude steel production expected to exceed 3.2 million mt, making it difficult to improve the oversupply situation.

Overall, the current cost support logic for stainless steel remains, but the contradiction between low finished product prices and oversupply is prominent. The missed opportunity in last year's peak season, coupled with weak downstream real estate demand this year, has led to a pessimistic outlook for September. The current SS contract has fallen to the cost level, and with weak fundamentals, a subsequent rebound lacks momentum, likely maintaining a low-level rangebound fluctuation.