Macro Disturbances Fade, Weak Demand Emerges, Stainless Steel Futures Market Faces Strong Upside Resistance [SMM Analysis]

SMM data shows that the most-traded SS contract surged and strengthened this week. As of 10:30 a.m. on May 16, the SS2507 contract was quoted at 12,995 yuan/mt, up 285 yuan/mt WoW.

After the US and China reached a 90-day tariff buffer period in the Geneva negotiations, the stainless steel market was significantly less affected by macro factors, gradually returning to the logic dominated by fundamentals. However, this week, a series of economic events in the US once again triggered market volatility. Moody's downgraded the US sovereign credit rating to Aa1, explicitly pointing out the risks of fiscal deficit expansion and a heavier debt interest burden, directly sparking market concerns about the sustainability of US debt. Meanwhile, the auction of 20-year US Treasury bonds was cold, with a winning bid rate of 5.047% and a bid-to-cover ratio of only 2.46, the lowest since February, pushing the yield on 30-year US Treasury bonds above 5%. In addition, the Trump tax cut bill was passed in the House of Representatives, expected to increase the fiscal deficit by $3.3 trillion over the next decade, further exacerbating the selling pressure on US debt and causing the three major US stock indices to fall more than 1.4% in a single day. Affected by the weakening US dollar, the futures market for gold and non-ferrous metals strengthened. Against this backdrop, the stainless steel futures market also ended its downward trend and rebounded.

From a fundamental perspective, as the macro-positive factors that previously supported the stainless steel market gradually faded, the weakness in downstream end-use consumption became increasingly apparent. The market has gradually entered the traditional consumption off-season. The frequent arbitrage operations between futures and spot markets conducted by traders previously have led to an abundant supply of low-priced warrant goods in the market, meeting some demand on a temporary basis. At the same time, stainless steel producers have limited production cuts, with production remaining at a high level, leading to a continued loose supply in the market. Under the dual pressures of weak demand and supply surplus, market participants' confidence is significantly lacking, and a wait-and-see sentiment prevails.

Considering the market performance this week, as the influence of macro factors gradually diminishes, the stainless steel market is accelerating its transition into the traditional consumption off-season. The current market is characterized by a prominent supply-demand imbalance, with the supply side maintaining a loose pattern and production remaining high on the one hand, and the demand side remaining weak on the other hand. The temporary satisfaction of market demand by previously low-priced goods is difficult to sustain. Although stainless steel futures prices are at a relatively low level and the price of high-grade NPI is approaching the cost line of smelters, in the absence of effective demand improvement, the market lacks strong drivers for an upside. It is expected that in the short term, stainless steel futures will mainly move in a volatile pattern, with limited upside room.