[SMM Stainless Steel Daily Review] Futures Support High Spot Prices, Stainless Steel Downstream Purchases Sluggish Before Chinese New Year

SMM January 29 report, SS futures showed a pattern of first falling then rising. During the night session yesterday, SS futures opened with a slight drop back, followed by a period of in the doldrums, but gradually strengthened around noon, reaching a high above 14,700 yuan/mt, generally fluctuating at highs. In the spot market, this morning, SS futures rebounded from lows. Traders mainly focused on stabilizing prices for sales, but as the holiday approached, downstream purchase inquiries were sluggish, and transactions remained weak. With the Chinese New Year holiday drawing near, under the support of high SS futures prices, spot prices continued to fluctuate at highs; most of the pre-holiday essential stockpiling by downstream users had already been completed earlier, and transactions remained sluggish throughout the week. Many traders reported that they would close for the holiday from this week to next week.

The most-traded SS futures contract first rose then fell. At 10:30 am, SS2603 was quoted at 14,430 yuan/mt, up 100 yuan/mt from the previous trading day. In Wuxi, 304/2B spot premiums and discounts ranged between 90-290 yuan/mt. In the spot market, Wuxi cold-rolled 201/2B coils were all quoted at 8,500 yuan/mt; cold-rolled 304/2B coils with trimmed edges, Wuxi average price was 14,400 yuan/mt, Foshan average price was 14,350 yuan/mt; Wuxi cold-rolled 316L/2B coils were 26,650 yuan/mt, Foshan 316L/2B coils were 26,650 yuan/mt; hot-rolled 316L/NO.1 coils, Wuxi was 25,800 yuan/mt; both Wuxi and Foshan cold-rolled 430/2B coils were 7,800 yuan/mt.

This week, driven by capital, market sentiment for a price rise continued to heat up; coupled with low stainless steel social inventory and limited arrivals at steel mills, some futures-spot institutions faced difficulties in picking up goods for their previous orders, making it hard to deliver short positions on time, further pushing up futures prices temporarily. Under the combined influence of multiple factors, SS futures continued to rise, breaking new highs since June 2024, directly driving up SS stainless steel spot prices. Although the strong performance of the futures market broke the previous wait-and-see atmosphere, injecting strong sentiment support into the spot market, the contradiction in the supply-demand structure has not been effectively alleviated, and the market operation showed distinct structural characteristics. As stainless steel spot prices continued to climb with the futures, fear of high prices among downstream end-users significantly increased, leading to more cautious purchasing attitudes, and the market's actual transactions remained weak. Observing the transaction structure, this week's market transactions mainly concentrated on futures-spot institutions buying spot goods and hedging on the futures, with goods mostly accumulating in the circulation stage, not truly flowing into the end-use consumption sector, resulting in severe inadequacy of terminal demand support for the market. However, recent limited arrivals at stainless steel mills, along with a slight inventory buildup but still at a low level, made overall trade supplies tight. Traders, relying on the strong futures and tight supply, were strongly inclined to hold prices firm, with fewer operations of selling at lower prices, which also supported stainless steel spot prices to hold up well. The strong performance on the cost side further solidifies the price support below: high-grade NPI prices remain on an upward trajectory, driven by persistent expectations of nickel ore shortages; high-carbon ferrochrome prices hold steady at highs; stainless steel scrap prices follow the rise in stainless steel finished products. However, as stainless steel prices increase, steel mill smelting profits have been effectively restored. Overall, this week's stainless steel market trend was still driven by strong futures and market sentiment. Although the spot fundamentals are supported by two major positives—"low inventory and strong costs"—and the restoration of steel mill profits has further improved supply-side expectations, the real end-use demand has not shown substantial improvement, and the issue of goods accumulation in the circulation chain remains unresolved. In the short term, the market may continue to hold up well, but the risk of contention triggered by weak end-use demand has gradually intensified.