Dislocation in Stainless Steel Supply and Demand, Prices and Costs Fall Simultaneously [SMM Analysis]

This week, stainless steel continued to show a simultaneous weakening trend in spot prices and production costs. Stainless steel transactions remained sluggish, with steel mills facing difficulties in selling their products, leading to inventory buildup. During the week, the mills even canceled the price limits for rolled plates at one point, causing stainless steel prices to fall to a new five-year low. Amidst the supply-demand mismatch in the market, expectations for production cuts by stainless steel mills intensified. Prices of high-grade NPI, stainless steel scrap, and high-carbon ferrochrome all weakened, with costs declining in tandem. The losses incurred by steel mills slightly widened. Taking 304 cold-rolled products as an example, based on the raw material prices of the day, the cash cost decreased by 147.74 yuan/mt this week, with the loss ratio reaching 6.08%. If calculated based on the cost of raw material inventory, although the cash cost decreased by 29.33 yuan/mt, the loss ratio remained at 5.97%.

Regarding the cost of nickel-based raw materials. During the week, stainless steel consumption remained sluggish. Stainless steel mills, facing losses in production costs, reduced their planned production and had low acceptance of high-priced raw materials, showing a strong desire to bargain down prices. Against this backdrop, the purchase prices of high-grade NPI by steel mills continued to decline. On Friday, a transaction price of 925 yuan/mtu was reported in the market, further dampening market confidence. Traders' willingness to sell significantly increased, driving the price of high-grade NPI into a weakening trend. By the close of trading on Friday, the price of high-grade NPI with a grade of 10-12% had cumulatively fallen by 17.5 yuan/mtu, finally closing at 933.5 yuan/mtu. In the stainless steel scrap market, after the price of stainless steel scrap further declined following the drop in finished stainless steel prices, it regained its economic advantage over high-grade NPI, and signs of tight market supply began to emerge. Despite the weakening trend in stainless steel finished product consumption and expectations for production cuts by steel mills, the price of stainless steel scrap remained difficult to reverse its weakening trend. However, the combination of economic advantage and tight supply would provide some resistance to its price decline. As of Friday, the price of 304 off-cuts in east China had cumulatively fallen by 150 yuan/mt, with the latest quote dropping to 9,500 yuan/mt.

Regarding the cost of chrome-based raw materials, although the price of high-carbon ferrochrome remained largely stable during the week, occasional low-price transactions were observed in the market amidst weak market expectations. Although the overseas market futures prices of chrome ore remained high, the spot prices had been significantly high in the early stage, and with no further upside potential, they had gradually pulled back recently. Currently, overseas ferrochrome producers are facing production halts and maintenance due to cost pressures, with expectations for a decline in overall overseas supply and ferrochrome imports. Although demand is also expected to decline amidst expectations for production cuts by stainless steel mills, considering the need to ensure raw material supply, stainless steel mills may exercise relative restraint in reducing prices when procuring ferrochrome through tenders. Data shows that the price of high-carbon ferrochrome in Inner Mongolia remained stable this week, with the latest quote at 7,850 yuan per 50 base tons.

Overall, amidst sluggish stainless steel consumption, price pullbacks, cost-price losses at stainless steel mills, intensified expectations for production cuts, and a decline in demand for raw materials, With weakening demand for high-grade NPI and high-carbon ferrochrome, prices are facing significant downward pressure. In the short term, the mismatch between supply and demand remains the main contradiction in the market, and the smelting cost and price of stainless steel are likely to continue weakening in tandem.