[SMM Analysis] Peak-Season Warm-Up Continued to Fall Short, SS Futures Broke Below the 14,000 Threshold; Inventory Buildup Persisted, Losses at the Margin Provided a Floor

SMM data showed that this week (August 24-28), the most-traded stainless steel contract broke down on weakness, with volatility intensifying and the center continuing to move lower. On Monday (8/24) it was quoted at 14,260 yuan/mt; on Tuesday (8/25) it pulled back to 14,145 yuan/mt; on Wednesday (8/26), affected by news of supply disruptions on the NPI side, market concerns over supply briefly heated up, driving futures to rebound after shooting up to 14,270 yuan/mt. However, the bullish catalyst lacked persistence and the core bearish logic remained unchanged; it then fell back to 14,070 yuan/mt on Thursday (8/27). On Friday (8/28) it continued to edge lower and closed at 13,985 yuan/mt, officially breaking below the key 14,000 yuan/mt level. For the week, it fell 220 yuan/mt from last Friday’s (8/21) close of 14,205 yuan/mt, a decline of 1.55%, with bearish sentiment continuing to be released.

Macro and news-wise, hawkish rhetoric from the US Fed further strengthened. Cleveland Fed President Hammack reiterated an anti-inflation stance, saying the current level of restrictiveness in interest rates was still insufficient; Boston Fed President Collins said it was appropriate to raise rates “as soon as possible” in the absence of evidence of a sustained pullback in inflation; Kansas City Fed President Schmid believed policy remained relatively accommodative and inflation was still above target; Chicago Fed President Goolsbee said the biggest near-term concern was that inflation was not under control, and tariff- and war-related price increases posed challenges to the US Fed; Richmond Fed President Barkin warned that if debt continued to rise, investors would sooner or later stop buying US Treasuries. On the data front, the US July PCE price index came in at 3.7% YoY, flat from the prior month and above the market expectation of 3.6%, slightly lifting market expectations for a rate hike next month; July new home sales fell to a six-month low, consumer confidence dropped to the lowest level of the year, and the July goods trade deficit hit a new high since March 2025. The ECB meeting minutes also showed that another rate hike might still be needed if the inflation outlook did not improve significantly.

In the Middle East, there were signs of a phased easing, though reversals remained possible. Trump said he had been notified by the US Navy that all mines in international waters of the Strait of Hormuz had been removed or detonated; Iran and Oman issued a joint statement proposing to establish a mutually agreed secure maritime corridor in the strait, but Iran stressed the strait would not reopen immediately, and as of Friday the two sides were still consulting on specific details, with the agreement not yet finalised. An Iranian parliamentary committee approved charging service fees to vessels transiting the strait (the bill pending a plenary vote), and had decided to allow some Iraqi oil tankers to pass; crude oil exports from Kuwait and Qatar through the strait had recovered to 70% of pre-conflict levels. Meanwhile, the US Treasury announced an expansion of secondary sanctions, imposing sanctions on entities and countries worldwide that still maintained commercial ties with Iran, covering areas such as technology, gold, aviation, and shipping, and sanctioning nearly 60 entities, individuals, and vessels; Iran responded that any country participating in restrictions on Iran’s economy would be regarded as an enemy. Morgan Stanley raised its Q4 Brent crude price expectations to a peak of $100 per barrel. Trade frictions also escalated: Canada refused to finalise a trade agreement with the US and will impose retaliatory tariffs of 15%, 25%, or 50% on about $20 billion of US products starting September 8; the US side was considering an additional 7.5% tariff on China, and China’s Ministry of Commerce responded that the US launching a Section 301 investigation against 16 economies including China on the grounds of “overcapacity” was a typical act of unilateralism and protectionism, which China firmly opposed.

In China, the Ministry of Finance issued a notice on further improving fiscal-financial coordination to boost domestic demand, and disclosed that since the beginning of this year it had allocated 187.5 billion yuan in trade-in funds for consumer goods, driving related product sales of about 1.32 trillion yuan and benefiting 178 million person-times; the PBOC conducted a 500 billion yuan one-year MLF operation on August 25, and carried out overnight reverse repo operations from August 27 to September 1 with a daily cap of 600 billion yuan. National Energy Administration data showed that from January to July, total electricity consumption rose 4.7% YoY; as of end-July, cumulative installed power generation capacity nationwide reached 4.08 billion kW, up 11.0% YoY. Notably, Shanghai explicitly proposed expanding trading scale in key metal categories such as copper and aluminum, accelerating improvements to the futures product lineup for emerging metals such as lithium, cobalt, and nickel, which was positive for medium and long-term liquidity building in nickel-related products.

Fundamentals-wise, demand ahead of the peak season continued to be absent, and the contradiction of loose supply and demand became more pronounced. It was already late August and approaching the traditional “September-October peak season,” but the expected end-use stock up in advance had not started as scheduled; downstream rigid demand remained weak, on-market transactions stayed sluggish, and overall market confidence was insufficient. Supply-demand pressure continued to build: weak end-user purchasing combined with relatively heavy overall shipments pressure, and steel mills mainly adopted a strategy of actively selling and reducing their own inventory, driving the release of incremental supply in circulation—SMM weekly data showed that 300-series social inventory rose to 588,000 mt this week (August 27), up 2,000 mt from 586,000 mt in the prior period (August 20), up 0.34% MoM, with the inventory buildup pattern continuing. Meanwhile, mainstream steel mills offered price compensation for earlier agent allocations, and the hold prices firm strategy clearly loosened, further weakening support for the spot price; coupled with the continued breakdown and decline in futures, the spot price center followed suit and kept pulling back.

Cost and profit-wise, finished product and nickel-related raw material prices fell in tandem, but finished product declined more deeply due to being dragged by futures. High-grade NPI fell continuously this week from 1,131.5 yuan/nickel unit on Monday to 1,126 yuan/nickel unit on Friday, down a cumulative 5.5 yuan over the week; the latest weekly average price for high-carbon ferrochrome (the week of August 21) was 7,925 yuan/mt (50% metal content), down 10 yuan from 7,935 yuan/mt (50% metal content) in the prior period (the week of August 14). The decline on the raw material side was relatively mild, while finished product fell 1.55% over the week; the price spread between finished product and raw materials continued to narrow, further squeezing steel mill 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 futures bearish factors and supply-demand pressure, keeping the downside in spot relatively controllable; the market showed a subdued tone but was unlikely to see a deep drop.

Overall, this week the stainless steel market showed a tug-of-war pattern featuring a retreat after rapid rise and breakdown in futures, a miss in peak-season preheating demand, loosening steel mill efforts to hold prices firm, continued inventory buildup, and cost support as losses neared. Although NPI-side disruptions briefly brought expectations of supply contraction during the week, under the fundamental pressure of persistently weak demand and continued inventory accumulation, a single supply disruption was unlikely to reverse the market’s core logic. In the short term, weak end-use demand, inventory buildup, and bear-led futures were the key bearish factors, making it difficult to reverse the weak pattern; however, the risk of losses continued to constrain downside room, and the market was likely to maintain consolidate on a subdued note. Going forward, key items to track include the persistence of downside after the SS futures breakdown, the pace of downstream peak-season stockpiling implementation, changes in steel mill shipments and hold prices firm policies, changes in the raw material–finished product price spread, and the progress of social inventory buildup, while also watching whether the Strait of Hormuz secure corridor agreement can ultimately be implemented and how it transmits to the cost side.