Macro Tailwinds Drive Futures Rebound, Weak Fundamentals Limit Upside Room [SMM Stainless Steel Daily Review]

SMM December 5 - SS futures showed a strengthening and recovery trend. Today, the stainless steel futures strengthened and recovered, with overall strong fluctuations during the day, reaching a high point of over 12,500 yuan/mt. In the spot market, driven by macro tailwinds this week, SS futures strengthened at the beginning of the week, restoring market confidence and significantly warming up transactions. Although the upward momentum of stainless steel spot prices was limited due to a loosening cost side, there was still some upward movement. However, under the year-end off-season, the market still had significant wait-and-see sentiment. After a phase of transaction replenishment, trading weakened quickly. This week, social inventory accumulated, rising 0.1% WoW to 946,900 mt.

The most-traded SS futures contract fluctuated weakly. At 10:30 am, SS2601 was quoted at 12,455 yuan/mt, unchanged from the previous trading day. The spot premiums/discounts for 304/2B in Wuxi ranged between 315-515 yuan/mt. In the spot market, the 201/2B cold-rolled coil in Wuxi was quoted at 7,950 yuan/mt; the 304/2B cold-rolled coil (with edge) averaged 12,700 yuan/mt in Wuxi and 12,700 yuan/mt in Foshan; the 316L/2B cold-rolled coil in Wuxi and Foshan was 23,775 yuan/mt; the 316L/NO.1 hot-rolled coil in Wuxi was 23,000 yuan/mt; the 430/2B cold-rolled coil in both Wuxi and Foshan was 7,600 yuan/mt.

Recently, against the backdrop of enhanced expectations for US Fed interest rate cuts, metal futures as a whole operated in a stronger trend. SS futures were driven by SHFE nickel and ferrous metals futures, along with recent news of stainless steel production cuts, which restored market confidence. Moreover, as the futures price had fallen to its lowest level since 2020, further declines faced resistance, leading to a stop falling and rebound recently. However, the fundamental situation of stainless steel was relatively weak, with limited upward momentum, resulting in limited overall gains. Driven by the strengthening of SS futures, spot transactions improved. At the beginning of the week, inquiries and transactions increased significantly. Market transactions were still largely influenced by the rise and fall of futures, with downstream players engaging in clear phase-based restocking. Nevertheless, the pessimistic sentiment in the stainless steel market did not dissipate. With continuously falling costs and low confidence in year-end demand, after the short-term release of macro tailwinds, the market remained cautious, and transactions may again become sluggish, making it difficult for actual transaction prices to rise significantly. From the production perspective, although frequent announcements of production cuts by stainless steel mills were made earlier, the actual reduction in November was only 1.79%, down to 3.394 million mt. Although December production is expected to decrease further, given that current inventory has not accumulated significantly and raw material price pullbacks have reduced cost pressure on stainless steel mills, attention should be paid to the actual implementation of production cut plans. At year-end, domestic policies primarily focus on stability, and the positive impact of the US Fed's interest rate cuts on the market has gradually been digested. From a macro perspective, the likelihood of further strong supportive policies being introduced is low. Additionally, as raw material prices pull back, cost support weakens. Although stainless steel prices are already at relatively low levels, there remains a possibility of a slight drop.