[SMM Analysis] Futures Boosted by Capital Gameplay, Macro Recession Concerns Loom Large [SMM Stainless Steel Futures Weekly Review]

SMM data showed that the most-traded stainless steel futures contract (SS2601) experienced a typical "divergence between futures and spot markets" this week (December 1-5, 2025). As of 10:30 on December 5, the contract price surged to 12,505 yuan/mt, rebounding significantly from last week's low. However, this rally was not driven by fundamental improvements but by short-term capital flows. Open interest for the SS2601 contract further shrank sharply to 91,600 lots (117,000 lots last week), indicating that major funds were accelerating their exit. The gains in futures were more due to "short covering" by bears taking profits rather than active buying by bulls. This rise, lacking support from incremental funds, was widely regarded by the market as a "hollow rally."

From a macro perspective, the external environment remained chilly, with significant bearish signals emerging frequently. The US ADP employment data for November showed contractions in both manufacturing and construction employment, while layoffs at small businesses indicated a substantial cooling in core export orders for stainless steel used in home appliances, equipment, and decoration. Coupled with the deep slump in US commercial real estate undermining long-term growth in construction steel demand, the logic of weakening external demand was being validated. Notably, although copper prices surged this week driven by AI-related power demand, stainless steel, as a traditional manufacturing product, follows a fundamentally different logic from copper, and one should avoid the misconception of "nonferrous metal co-movement." Additionally, expectations of a Bank of Japan rate hike and the risk of a steepening US Treasury yield curve suggested that global financing costs would remain high, continuing to suppress traders' stockpiling willingness.

Fundamentally, the market was caught in an awkward squeeze between "increasing supply" and "demand fearing high prices" this week, with the spot market offering no support for futures prices. On the supply side, there were no signs of implemented production cuts; instead, news of production resumptions emerged: a major state-owned steel mill in the North restarted its cold-rolling line earlier than planned after maintenance, a new production line commenced operations at a pipe manufacturer in Xiangshui, Jiangsu, and TISCO announced a capacity upgrade, leading to increased rather than reduced supply pressure. On the demand side, clear "high-price fear" sentiment was evident, with market transactions concentrated mainly in the low range of 12,250-12,300 yuan/mt. Once prices followed futures higher to 12,400-12,500 yuan/mt, downstream inquiries vanished immediately, forcing traders to offer discounts covertly. SMM data indicated a slight increase in social inventory to 947,000 mt this week (946,000 mt last week). The fact that inventory rose instead of falling against the backdrop of a price rebound sufficiently demonstrated weak end-user purchase willingness.

Cost side, the negative feedback loop persisted. As of December 5, high-grade NPI offers continued to slide softly to 881 yuan/mtu, and although high-carbon ferrochrome prices held steady at 8,025 yuan/mt (50% metal content), they were insufficient to offset the cost collapse pressure from the declining price center of core nickel raw materials. The continued weakness in raw material prices has further widened the premium of current futures prices, increasing the risk of a correction.

Overall, the nature of this week's market movement was sentiment-driven turbulence during the capital rollover process, while the fundamentals have already revealed a triple bearish pattern of "increasing supply, weakening demand, declining external demand, and falling costs." Looking ahead to next week, as short covering concludes, the high prices lacking support from spot cargo and macro factors are expected to be unsustainable. Caution is warranted as the futures market may briefly surge before reverting to fundamental logic and facing the risk of a catch-up decline.