Macro Tailwinds Coupled with Weak Nickel Iron Prices, Stainless Steel Costs Pull Back, Inversion Narrows [SMM Analysis]

This week, stainless steel spot prices and production costs weakened and declined in tandem, narrowing the inverted spread for stainless steel mills further. Taking 304 cold-rolled products as an example, based on the raw material prices of the day, the cash cost increased by about 4.39 yuan/mt this week, with a loss ratio reaching 4.86%. When calculated using the raw material inventory cost, the cash cost decreased by about 23.33 yuan/mt, and the loss rate remained at 5.79%.

On the nickel-based raw material cost side, high-grade NPI prices fell further this week. Although current high-grade NPI prices are already at relatively low levels and traders' sentiment to hold prices firm gradually strengthened, leading to a noticeable slowdown in the recent price pullback, stainless steel mills have relatively ample raw material stockpiling and weak purchase willingness, making it difficult for high-grade NPI prices to shake off their weakness. As of Friday, the price of high-grade NPI with 10-12% grade fell by 1.5 yuan/mtu, settling at 881 yuan/mtu. In the stainless steel scrap market, stainless steel finished product prices strengthened, high-carbon ferrochrome prices remained firm temporarily, and coupled with the slowdown in the decline of high-grade NPI prices, stainless steel scrap prices stopped falling and strengthened. Although the continuous decline in high-grade NPI has narrowed the economic advantage of stainless steel scrap over high-grade NPI, it still maintains a certain economic advantage. With prices at historical lows, the market's willingness to further concede for low-price transactions was not strong, leading to a slight recovery in stainless steel scrap prices within the week. As of Friday, the price of 304 off-cuts in east China rose by 50 yuan/mt, with the latest offer around 9,050 yuan/mt.

On the chrome-based raw material cost side, high-carbon ferrochrome operated basically stable this week. Although the December tender prices from mainstream stainless steel mills for high-carbon ferrochrome were high, November high-carbon ferrochrome production reached a historical high, resulting in relatively loose supply of ferrochrome. Additionally, with ample chrome ore supply, chrome ore prices continued to pull back, and ferrochrome producers have substantial profits, leaving significant room for acceptable price declines. Furthermore, with expected production cuts by stainless steel mills in December, there is considerable downside risk for future high-carbon ferrochrome prices. As of Friday, high-carbon ferrochrome prices in Inner Mongolia operated steadily, settling at 8,025 yuan/mt (50% metal content).