Futures Recover, Driving Steel Products Higher, while Raw Materials Drift Lower, Expanding Steel Mill Profits [SMM Analysis]

Stainless steel product prices and production costs drifted higher simultaneously this week, with the rise in product prices outpacing raw material gains overall, driving an expansion in smelter profits on a MoM basis. Based on 304 cold-rolled calculations, the profit margins this week were 2.39% using current raw materials and 1.07% using inventory raw materials, with spot profit resilience notably restored.

On the nickel raw materials side, high-grade NPI prices generally ground lower and pulled back this week, with the rebound in futures and spot procurement creating a distinct tug-of-war. Within the week, SHFE nickel and SS futures drifted higher in tandem, while upstream smelters and traders had relatively ample willingness to hold prices firm. However, downstream steel mills held cautious expectations for the off-season market outlook, raw material procurement sentiment was weak, push-for-lower-price strategies were continuously implemented, and no concentrated restocking demand emerged in the market. Under the tug-of-war between longs and shorts, the NPI price center continued to shift lower. As of Friday this week, the arrival tax-included price of Indonesian high-grade NPI with 10-12% grade in China fell by 4.5 yuan per nickel unit to 1,132.5 yuan per nickel unit.

Stainless steel scrap prices rose on the back of futures recovery this week, showing resilience but limited upside. Driven by the strength in SS futures, sentiment in the scrap market was somewhat restored, and stainless steel scrap's stable economic substitution advantage over the weaker NPI formed bottom support for prices. However, at the current stage, the market is in the traditional consumption off-season, with weak end-user demand restraining overall finished product demand. Combined with tight stainless steel scrap tax invoices and steel mills continuously pushing for lower prices, market trading activity was constrained, and prices struggled to open upside room, maintaining an overall stable consolidation pattern. As of Friday this week, mainstream 304 off-cuts prices in Shanghai rose by 100 yuan/mt to be quoted at 10,250 yuan/mt.

On the chromium raw materials side, high-carbon ferrochrome prices pulled back slightly this week, with the industry's ample supply pattern keeping pressure on the market. Currently, the ferrochrome market is well-supplied, market pessimism has not markedly eased, downstream just-in-time procurement was sluggish, and on-site transactions continued to be weak. However, overseas chrome ore prices stabilized and rebounded, moderately easing the downward pressure on ferrochrome cost side and causing the decline in ferrochrome to slow down. As of Friday this week, mainstream high-carbon ferrochrome prices in Inner Mongolia fell by 25 yuan/mt (50% metal content) MoM to 8,075 yuan/mt (50% metal content).