[SMM Stainless Steel Daily Review] Macro Sentiment Drives SS Futures to Limit Down, Spot Stainless Steel Trading Sluggish Ahead of Holiday

SMM Feb. 2 - SS futures showed a significant pullback. Influenced by news of the US Fed Chairman transition, metal futures generally declined. SS metal futures opened with a sharp drop and were limit-down by the close. In the spot market, dragged down by the significant futures decline, spot quotations were chaotic during the day. Although prices for some specifications saw large cuts, as the Chinese New Year holiday approached, traders faced low inventory pressure, so the drop in mainstream quotations was less pronounced than in futures.

The most-traded SS futures contract fell sharply. At 10:30 a.m., the SS2603 contract was quoted at 13,860 yuan/mt, down 435 yuan/mt from the previous trading day. In Wuxi, the spot premium/discount for 304/2B was in the range of 460-760 yuan/mt. In the spot market, the average price for Wuxi cold-rolled 201/2B coil was 8,500 yuan/mt; for cold-rolled mill-edge 304/2B coil, the average price was 14,300 yuan/mt in Wuxi and 14,200 yuan/mt in Foshan; for cold-rolled 316L/2B coil, it was 26,600 yuan/mt in Wuxi and 26,600 yuan/mt in Foshan; for hot-rolled 316L/NO.1 coil, it was 25,800 yuan/mt in Wuxi; for cold-rolled 430/2B coil, it was 7,800 yuan/mt in both Wuxi and Foshan.

Approaching the Chinese New Year holiday and rising risk-averse sentiment prompted concentrated profit-taking by bulls. SS futures lacked upward momentum and were generally in the doldrums. Significant capital outflows further suppressed upside room. Consequently, although stainless steel spot prices remained high, their upward momentum stalled, and market sentiment shifted from previous caution to conservatism. The spot market lacked fundamental support, showing a sluggish overall trend before the holiday, with the "high price, low transaction" characteristic particularly notable. As the holiday neared, pre-holiday stockpiling by downstream end-users was largely finished. Coupled with high spot prices, end-users had a strong fear of high prices, leading to persistently weak purchase willingness and sluggish actual market transactions. Most spot traders planned holidays before the first week of February, further reducing market activity. This week, social inventory of stainless steel saw a slight rebound but remained at historically low levels. The main purchasers in the market were futures-spot arbitrage institutions, with end-users' actual procurement proportion being low. A large amount of supply remained in the circulation chain without truly flowing into end-use consumption, severely weakening the support from end-use demand and intensifying market speculation. Supply side, the impact of the Chinese New Year holiday emerged early. Stainless steel production in February is expected to see a significant pullback, but downstream end-use industries are also entering the holiday period, leading to a temporary demand standstill. The positive effect of reduced supply was fully offset by demand contraction, making it difficult to provide effective support to market prices in the short term, with an overall relatively weak impact. Cost side, the overall trend showed a divergence. The rise in high-grade NPI slowed significantly this week, with stainless steel mills showing a weak willingness to purchase high-priced raw materials, leading to relatively light actual transactions; high-carbon ferrochrome, on the other hand, continued its upward trend, but the overall support for stainless steel prices had weakened, with the cost center only shifting slightly upward. Overall, the stainless steel market this week was mainly driven by the capital movements in futures, with the fundamental support from the spot market being relatively weak. With pre-holiday risk aversion, weak end-use demand, and transactions stagnating in the distribution channels, the market lacked core fundamental support, and short-term activity is expected to decline further, putting downward pressure on spot prices.