Insufficient favourable macro front and weak fundamentals, stainless steel futures market fluctuates at lows [SMM Stainless Steel Futures Weekly Review]

SMM data shows that the most-traded SS contract continued to fluctuate at lows this week. As of 10:30 on June 6, the SS2507 contract was quoted at 12,700 yuan/mt, unchanged WoW.

From a macro perspective, domestic policies have continued to exert influence, injecting liquidity into the market. In May, the People's Bank of China (PBOC) announced a 0.5 percentage point cut in the reserve requirement ratio (RRR), releasing 1 trillion yuan in long-term funds, and supplemented short-term liquidity through reverse repo operations totaling 700 billion yuan. On June 5, the PBOC conducted an unprecedented 1 trillion yuan in outright reverse repo operations, further stabilizing market expectations. Internationally, US trade policies and economic data have disrupted the market. Starting from June 4, the US increased tariffs on steel and aluminum imports from 25% to 50%, mainly affecting major exporters to the US such as Mexico and Canada. Given the limited direct exports of Chinese stainless steel to the US, the impact is expected to be relatively small. Additionally, a surge in initial jobless claims in the US in early May has heightened market concerns about an economic downturn, significantly increasing expectations for US Fed interest rate cuts this year.

Returning to the fundamentals, the stainless steel market has entered the traditional consumption off-season, with sluggish transactions and downstream buyers only making just-in-time procurement. Currently, stainless steel enterprises are generally facing losses due to cost inversion. Despite news of production cuts from multiple steel mills, the supply scale remains at historically high levels for the same period due to the high production base in the early stage, and the supply-demand imbalance in the market persists. Against this backdrop, social inventory of stainless steel remains high, and traders face significant pressure to sell, making price cuts and sales promotions commonplace.

Overall, although SS futures prices have reached historical lows and cost support provides a certain floor for prices, the fundamentals are unlikely to support a price rebound amid limited production cuts by steel mills and persistently weak demand. It is expected that in the short term, the SS futures market will continue to fluctuate at lows.