Decline in Cost Reduction Narrows, Weak Demand for Stainless Steel Makes Inversion Hard to Reverse [[SMM Analysis]]

This week, the production cost of 304 stainless steel continued to decline, but the rate of decline narrowed significantly. As retail prices continued to fall, the losses at stainless steel mills worsened.

In terms of nickel-based costs, due to the impact of stainless steel mills cutting production of 300-series stainless steel and switching to 200-series and 400-series stainless steel, the procurement demand for high-grade NPI remained sluggish, and prices continued to decline. However, the current price of high-grade NPI has already reached a low level, approaching the cost line in Indonesia, with limited room for further decline. The rate of decline slowed significantly this week. As of Friday, the price of 10-12% high-grade NPI had cumulatively fallen by 1.5 yuan/mtu, closing at 968.5 yuan/mtu. The price of stainless steel scrap remained stable. Despite a weakening cost advantage compared to high-grade NPI, it still remained economical, enabling enterprises using short-process technology to maintain a competitive edge on the cost side. For example, the price of 304 off-cuts in east China remained stable this week, with quotes around 9,650 yuan/mt.

In terms of chrome-based costs, the retail price of high-carbon ferrochrome continued to pull back, narrowing the gap with steel mill tender prices, with some low prices already on par with tender prices. Manufacturers that had stocked up on low-cost chrome ore during the previous price increase of ferrochrome, benefiting from lower smelting costs, saw their profits recover. Their enthusiasm for production resumptions has surged recently, which will alleviate the tight supply situation. Coupled with factors such as weak stainless steel consumption and losses, a cautious and pessimistic sentiment pervades the ferrochrome market. Specific data shows that the price of high-carbon ferrochrome in Inner Mongolia fell by 100 yuan/50 base tonnes this week, with the current quote at 8,150 yuan/50 base tonnes.

Currently, although the spot price of stainless steel has stabilized and stopped falling, due to the significant decline in the early stage, corporate losses continue. Taking 304 cold-rolled stainless steel as an example, based on the raw material price of the day, the cash cost fell by 18 yuan/mt this week, with the loss margin narrowing to 7.33%. If calculated based on the cost of raw material inventory, the cash cost instead rose by 52 yuan/mt, with a loss rate of 7.36%. Looking ahead after the Labour Day holiday, fluctuations on the cost side are expected to moderate, but weak demand remains the core issue in the market. Stainless steel prices lack upward momentum, and the situation of losses is unlikely to reverse in the short term.