[SMM Stainless Steel Daily Review] SHFE Nickel Stops Falling but Fails to Reverse SS Weakness; Guidance Price Cut Drives Stainless Steel Spot Prices Downward

According to SMM on July 9, SS futures further pulled back. Although SHFE nickel edged higher, SS futures were under pressure from funding side and continued to drop. At close, the most-traded SS contract settled at 14,355 yuan/mt. In the spot market, dragged by SS futures' consecutive declines, a mainstream steel mill lowered its guidance price, and spot prices followed suit. Against the backdrop of overall weak market sentiment, transactions remained sluggish.

SS Futures Most-Traded Contract. At 10:15 a.m., SS2608 was reported at 14,375 yuan/mt, down 115 yuan/mt from the previous trading day. Spot premiums for 304/2B in Wuxi were in the range of 545-1,095 yuan/mt. In the spot market, the average price of cold-rolled 201/2B coils in Wuxi remained stable; for cold-rolled 304/2B coils with rough edges, the average price in Wuxi fell 50 yuan/mt, and in Foshan fell 50 yuan/mt; cold-rolled 316L/2B coil prices in Wuxi were flat; hot-rolled 316L/NO.1 coils in Wuxi were quoted flat; cold-rolled 430/2B coils in both Wuxi and Foshan were flat.

This week, the tussle between macro and industry logic dominated futures movements. US inflation data pulled back, market expectations for US Fed interest rate hikes further cooled, and the US dollar index weakened, overall boosting commodities and base metals valuations and providing macro support for the metals sector. On the industry side, however, sentiment remained persistently bearish. The matter of additional quotas for Indonesian nickel mines remains unresolved, and the market harbors strong concerns over looser nickel supply ahead. SHFE nickel traded in a low range and failed to stage an effective rebound. Dragged by nickel prices, SS futures continued to consolidate on a weak note, struggling to rise. The key support at 14,500 yuan/mt on the downside, however, held firm, and futures did not break down below this level, overall moving sideways in a range. Spot and inventory side, mainstream steel mills maintained firm willingness to hold prices firm, locking in downside room for spot prices from the mill gate. The market has now fully entered the traditional consumption off-season, with end-user demand inherently weak. Combined with SS futures remaining in the doldrums, overall market trading confidence was insufficient, and traders were more willing to destock and sell. Downstream end-users were in a strong wait-and-see mood, purchasing mainly on demand, and on-site transactions stayed sluggish. Supply-side news of maintenance and production cuts continued to ferment. Along with social inventory this round, though the decline halted and rose slightly, the increase was limited, overall inventory pressure remained relatively low. Multiple factors jointly supported spot prices holding firm. Cost and profit side, this week finished steel and raw material prices weakened in tandem. Structural price spread improvement led to MoM expansion in steel mill profits. During the week, the price centers of nickel-related raw materials and stainless steel finished products both moved lower, with the decline in raw material prices larger than that in finished steel prices. Combined with spot prices staying firm on the back of mills' price-supporting efforts, profit margins on finished products recovered. This week, overall smelting profits at stainless steel mills expanded, and the industry's profitability environment saw marginal improvement. Overall, the stainless steel market this week exhibited a two-way pattern of macro support and industry pressure, with a clear divergence between weak futures and firm spot prices. Sluggish end-use demand during the off-season and thin transactions were the core bearish fundamental factors, while steel mills holding prices firm, maintenance expectations, and low inventory continued to underpin spot prices. The decline in raw material prices helped improve steel mill profits, easing cost pressures on the production side. In the near term, the market is expected to trade around Fed policy expectations and Indonesian nickel ore policy developments, with futures moving sideways and spot prices remaining firm. Going forward, focus on the US dollar index trend, the implementation of Indonesia’s nickel quotas, key support levels for SS futures, changes in downstream off-season rigid demand, and steel mill maintenance and commissioning progress.