Favourable macro front drives up stainless steel prices, with the inverted margin of stainless steel mills narrowing [SMM Analysis]

This week, the stainless steel market saw a simultaneous increase in spot prices and production costs, with the spot price rise being more pronounced, effectively narrowing the losses of stainless steel producers. Taking 304 cold-rolled stainless steel as an example, based on the raw material prices of the day, the cash cost only increased slightly by 35 yuan/mt this week, with the loss ratio narrowing to 5.15%. If calculated based on the cost of raw material inventory, the cash cost rose by 101 yuan/mt, with a loss rate of 5.62%.

In terms of the cost of nickel-based raw materials, the market exhibited structural differentiation: the price of high-grade NPI continued its weak trend, while the prices of refined nickel, stainless steel scrap, and other raw materials rose, driving up the comprehensive procurement cost of nickel raw materials. Despite the ample supply of high-grade NPI in the market and the long-standing losses faced by producers, supported by the rise in stainless steel and refined nickel prices driven by favourable macro front, the decline in high-grade NPI prices narrowed significantly during the week. As of Friday, the price of 10-12% grade high-grade NPI had cumulatively fallen by 1 yuan/mtu, closing at 941.5 yuan/mtu. The price of stainless steel scrap closely followed the increase in stainless steel finished product prices. Although it no longer held cost advantages over high-grade NPI, due to tight market supply, traders generally adopted a strategy of standing firm on quotes and holding back sales, pushing prices higher overall. As of Friday, the price of 304 off-cuts in east China had cumulatively risen by 250 yuan/mt, reaching a quoted price of 10,000 yuan/mt.

The chromium-based raw material market, however, presented a different scenario. During the week, the price of high-carbon ferrochrome dropped back slightly. Despite the shutdown of overseas ferrochrome enterprises, market rumors suggested that major foreign suppliers planned to reduce domestic supply volumes, and the robust demand for ferrochrome driven by high stainless steel production, coupled with the difficulty in significantly lowering chrome ore prices due to control by overseas miners, the tight supply situation in the retail market was alleviated as domestic ferrochrome enterprises gradually resumed and expanded production in May. The market anticipated a supply surplus in May, cooling off bullish sentiment. Data showed that the price of high-carbon ferrochrome in Inner Mongolia fell by 75 yuan per 50 base tons this week, with the latest quoted price at 8,075 yuan per 50 base tons.

Overall, favourable macro front drove up stainless steel prices. Although costs increased slightly, the losses of enterprises improved. However, as the impact of favourable macro front gradually fades, the market will return to a logic dominated by fundamentals, and stainless steel prices lack sustained upward momentum. Given the expected continued weakness in the prices of core raw materials such as high-carbon ferrochrome and high-grade NPI, coupled with weak downstream demand, stainless steel prices lack upward support. It is anticipated that the situation of losses for enterprises will persist in the short term.