Stainless steel inventory at high levels, weak demand, SS futures hovering at low levels [SMM Stainless Steel Futures Weekly Review]

SMM data shows that the most-traded SS contract declined this week. As of 10:30 on June 20, the SS2508 contract was quoted at 12,490 yuan/mt, down 50 yuan/mt WoW.

From a macro perspective, within this week, Israel launched attacks on Iran's energy facilities, including oil refineries and natural gas fields, further exacerbating geopolitical risks. On June 18, the US Fed announced that it would maintain the target range for the federal funds rate at 4.25%-4.50%, yet the dot plot indicated that there could be two interest rate cuts this year, along with downward revisions to economic growth projections for this year and next. This policy decision has triggered changes in expectations for US dollar liquidity, potentially affecting international capital flows and commodity prices, thereby indirectly disrupting the stainless steel futures market. Data released by the National Bureau of Statistics (NBS) showed that in May, the value-added industrial output of enterprises above designated size increased by 5.8% YoY, and manufacturing investment grew by 8.5%. However, the real estate market remained sluggish, with the sales area of commercial housing from January to May down 2.9% YoY, undoubtedly dragging down the application demand for stainless steel in the architectural decoration sector.

On the fundamental side, downstream demand for stainless steel remained sluggish, with insufficient market confidence, and downstream just-in-time procurement was mainly in small volumes. Under the pressure to sell, traders opted to offer discounts to close deals, leading to a further decline in stainless steel prices, repeatedly breaking through the lows of the past five years. Despite this, stainless steel production remained at a relatively high level compared to the same period in history, with a supply-demand imbalance and social inventory continuously climbing, surpassing 1 million mt this week. In addition, prices of raw materials such as high-grade NPI, high-carbon ferrochrome, and stainless steel scrap also weakened and fell, with the cost support for stainless steel pulling back simultaneously, and the spot market in the doldrums.

Overall, stainless steel supply has recently been in surplus, demand has been sluggish, costs have pulled back, and fundamentals have been in the doldrums. Although prices have reached low levels, it is still difficult to change the market's bearish expectations. The SS futures market also exhibits a backwardation structure, with near-term contracts stronger than far-term ones. In the absence of significant production cut news from stainless steel mills in the short term, the market's weak pattern may be difficult to change.