[SMM Analysis] Significant Upward Shift in Cost Center Warns of High-Risk Divergence Between Futures and Spot Prices [SMM Stainless Steel Futures Weekly Review]

SMM data showed that this week (January 19-23, 2026), the most-traded stainless steel futures contract (SS2603) continued to rise, driven by strong increases in raw material costs. However, the spot market showed significant negative feedback, with the spot-futures price spread structure turning from positive to negative. As of 10:30 on January 23, the contract was quoted at 14,720 yuan/mt, up 315 yuan/mt (+2.19%) from the previous Friday's closing price of 14,405 yuan/mt. Although futures remained strong this week, the spot market did not follow suit; instead, it underwent a structural shift from high premiums to substantial discounts. This pattern of "strong futures, weak spot" indicates that valuations driven solely by cost increases, without the support of solid demand, are facing strong corrections in the spot market, and the risk of high-level adjustments is accumulating.

From a macro perspective, external disturbances coexisted with policy support, stabilizing overall sentiment in the non-ferrous metals sector. Overseas, influenced by geopolitical factors (Trump's reversal on Greenland) and market expectations of US Fed easing, the US dollar index fluctuated downward throughout the day, closing at 98.31. The weakening dollar effectively boosted the financial attributes of non-ferrous metals. Domestically, Shanghai released the "Action Plan to Strengthen Futures-Spot Linkage and Enhance the Level of Non-Ferrous Metals Bulk Commodities," aimed at improving resource allocation capabilities and global pricing influence. Positive signals from the policy side provided support for sector sentiment. Amid macro fund fluctuations, stainless steel maintained a relatively strong performance in line with the broader sector trend.

From a fundamental perspective, spot market liquidity significantly contracted, and the spot-futures price spread showed deep discount characteristics. The latest SMM data indicated that social inventory increased slightly to 844,100 mt this week, stalling the destocking trend. The most critical market signal was the rapid turn of the spot-futures price spread to negative, driven by the divergence between spot prices and futures. As the Chinese New Year approached, downstream end-users began holidays one after another, reducing purchase willingness to a low point, while traders faced year-end repayment pressures, strengthening their intent to recoup funds. According to SMM monitoring, the Wuxi 304 spot premiums/discounts range quickly shifted from 85-285 yuan/mt (premium) at the beginning of the week to a substantial discount, falling to -185 to -85 yuan/mt on the 23rd. This reversal from high premiums to deep discounts reflects insufficient willingness in the industrial sector to accept current high futures prices, with spot valuations unable to support further gains in futures.

The strong performance on the cost side remained the core logic supporting futures. As of January 23, high-grade NPI quotes continued to rise sharply to 1,042.5 yuan/mtu, up 25 yuan from the previous week; high-carbon ferrochrome adjusted slightly to 8,450 yuan/mt (50% metal content). Uncertainty surrounding Indonesian ore quota policies kept raw material prices persistently high, significantly increasing steel mills' marginal production costs. Moreover, as futures rose, immediate production profits gradually recovered to positive territory. It is noteworthy that recent market discussions about a "short squeeze" have intensified. The debate primarily centers on the fact that although institutional players hold pending short positions in the futures-spot arbitrage, they are constrained by the slow delivery pace from steel mills recently, coupled with the already tight availability of retail spot cargoes. This raises the possibility of a temporary tightness in deliverable resources and increased difficulties in organizing deliveries. This structural contradiction at the delivery level provides additional support to the futures market from a liquidity perspective, keeping futures prices firm despite spot discounts.

Overall assessment this week: the stainless steel market is in a deep tug-of-war between "strong cost-driven momentum" and "weak real demand." The high fluctuations in NPI have limited the downside room for futures, but negative feedback from the spot side has become very evident—the shift to significant spot discounts directly signals weak spot market absorption. Looking ahead to the final week before the holiday, as the market enters a substantive holiday mode, spot liquidity is expected to further contract. Although cost and delivery logic provide solid support, high vigilance is warranted against the risk of futures correction under the basis convergence logic. The futures market is expected to hover at highs with consolidation. Industrial clients are advised to closely monitor discount changes and strengthen risk management.