[SMM Stainless Steel Daily Review] Peak-Season Recovery Expectations Fell Through; Both Stainless Steel Futures and Spot Markets Came Under Pressure and Weakened

According to an SMM report on August 28, SS futures extended their earlier weak trend, generally consolidating at lows. Intraday trading consolidated around 14,000 yuan, with the low dipping to 13,915 yuan/mt. By the close, the most-traded SS contract settled at 14,225 yuan/mt. In the spot market, dragged down by the continued decline in SS futures and compounded by dashed expectations for a demand recovery ahead of the peak season, demand remained weak and destocking pressure kept mounting, sending stainless steel spot prices further lower in tandem.

The most-traded SS futures contract. At 10:15 a.m., SS2610 was quoted at 13,985 yuan/mt, down 85 yuan/mt from the previous trading day. In Wuxi, spot premiums for 304/2B were in the 485-885 yuan/mt range. In the spot market, the average price of Wuxi cold-rolled 201/2B coils was unchanged; for cold-rolled 304/2B coils with mill edge, the average price in Wuxi fell by 50 yuan/mt and the average price in Foshan fell by 50 yuan/mt; prices of cold-rolled 316L/2B coils in Wuxi were unchanged; Wuxi quotes for hot-rolled 316L/NO.1 coils were unchanged; cold-rolled 430/2B coils in both Wuxi and Foshan were unchanged.

This week, stainless steel futures generally showed a weak breakdown, with volatility intensifying and the center continuing to move lower. Futures were in the doldrums overall during the week. Midweek, a sudden safety incident at a nickel iron smelting production line in east China lifted market concerns over supply, briefly driving SS futures to shot up and rebound. However, the bullish impact lacked staying power, and the market’s core bearish logic remained unchanged. Futures subsequently weakened again and broke below the key 14,000 yuan/mt level. Overall, bearish sentiment continued to be released, and market trading sentiment stayed weak. The spot market weakened in step with futures, while pre-peak-season demand remained absent, further highlighting the contradiction of a loose supply-demand balance. It was already late August and approaching the traditional “September-October peak season,” but end-user stock up in advance did not start as expected. Downstream rigid demand remained weak, transactions stayed sluggish, and overall market confidence was insufficient. Pressure on the supply and demand side continued to build. With end-users lacking momentum to purchase and overall shipments pressure relatively high, steel mills mainly adopted a strategy of actively selling and reducing their own inventory, driving the release of additional supply on the circulation side. This week, stainless steel social inventory rose further, and the inventory buildup pattern continued. Meanwhile, mainstream steel mills offered price compensation for earlier allocations to agents, and their hold prices firm strategy clearly loosened, further weakening support for spot prices. Coupled with the continued breakdown and decline in futures, the spot price center continued to pull back accordingly. A bottom support formed on the cost and profit side, effectively limiting room for a sharp drop in spot prices. This week, prices of stainless steel finished products and nickel-series raw materials pulled back in tandem, but finished products fell more sharply under pressure from futures. The price spread between finished products and raw materials continued to narrow, further squeezing steel mills’ smelting profits, and the industry as a whole was already on the verge of losses. Rigid support on the cost side gradually became more evident, effectively offsetting part of the bearish factors in futures and supply-and-demand pressure, keeping the spot downside relatively manageable. The market showed a subdued tone but was unlikely to see a deep drop. Overall, this week the stainless steel market featured a tug-of-war pattern: futures shot up and then pulled back, breaking key levels; pre-heating demand ahead of the peak season fell through; steel mills’ efforts to hold prices firm loosened; inventory continued to build up; and costs, nearing losses, provided a floor. In the short term, weak end-use demand, inventory buildup, and bears’ dominance in futures were the key bearish drivers, making it difficult to reverse the weak market structure; however, the risk of losses on the cost side continued to cap downside room, and the market was likely to maintain consolidation on a subdued note. Going forward, key areas to monitor include the sustainability of SS futures, the pace at which downstream peak-season stockpiling materializes, changes in steel mills’ shipments and price-support policies, changes in the raw material–finished product price spread, and the progress of social inventory buildup.