Weak Stainless Steel Transactions, Low Prices Hard to Change, Expectations for Production Cuts, Costs Pull Back [SMM Analysis]

This week, stainless steel continued to show a trend of synchronized weakening in spot prices and production costs. Taking 304 cold-rolled products as an example, based on the raw material prices of the day, the cash cost decreased by 105.09 yuan/mt this week, with the loss ratio reaching 5.82%. If calculated based on the cost of raw material inventory, although the cash cost decreased by 50.78 yuan/mt, the loss ratio remained at 6.16%.

In terms of nickel-based raw material costs, despite the firm nickel ore prices this week, domestic NPI smelters have fallen into a dilemma of cost-price inversion, while the price of high-grade NPI has further weakened. Domestic stainless steel demand remains sluggish, with prices falling to their lowest point in nearly five years. Stainless steel mills are clearly in a state of cost-price inversion. Currently, both in-plant inventory and social inventory of stainless steel mills are at high levels, and expectations for production cuts are growing stronger. Consequently, the demand outlook for high-grade NPI has pulled back, leading to a sustained weakening in high-grade NPI prices. As of Friday, the price of high-grade NPI with 10-12% grade has cumulatively fallen by 12.5 yuan/mtu, finally closing at 921 yuan/mtu. In the stainless steel scrap market, as the price of high-grade NPI continues to decline, the price of stainless steel scrap has also weakened in tandem, but the decline is less than that of high-grade NPI, causing it to lose its economic advantage once again. As of Friday, the price of 304 off-cuts in east China has cumulatively fallen by 50 yuan/mt, with the latest quote dropping to 9,450 yuan/mt.

In terms of chrome-based raw material costs, this week is approaching month-end. Despite the relatively small decline in high-carbon ferrochrome prices during the week, market expectations for high-carbon ferrochrome steel tenders next month are gradually weakening. The expected decline is projected to expand from around 300 yuan/mt (50% metal content) previously to 400-500 yuan/mt (50% metal content), with pessimistic sentiment intensifying. This week, overseas major mines once again lowered the overseas market futures price of 40-42% chrome concentrate fines from South Africa by $10, to $265/mt. The cumulative decline over the past three weeks has reached $30. Under the current futures ore prices, the cost of ferrochrome in the Inner Mongolia region has dropped to around 7,400 yuan/mt (50% metal content), weakening the cost support for ferrochrome and providing room for further price reductions. In addition, stainless steel consumption has remained sluggish recently, with stainless steel mills generally facing a situation of cost-price inversion. Expectations for production cuts are growing stronger, and the demand outlook for ferrochrome has also declined. Data shows that the price of high-carbon ferrochrome in the Inner Mongolia region fell by 50 yuan/mt (50% metal content) this week, with the latest quote at 7,800 yuan/mt (50% metal content).

Overall, despite the continuous decline in the prices of raw materials such as high-grade NPI, stainless steel scrap, and high-carbon ferrochrome amid sluggish stainless steel consumption, it is still difficult to reverse the current situation of cost-price inversion for stainless steel mills. Raw material prices and stainless steel finished product prices have declined in tandem. Before the supply-demand relationship in the stainless steel market is restored, the situation of inverted stainless steel cost prices is likely to persist.