Finished steel weakness drags raw materials downward; steel mills remain inverted, stainless steel cost center shifts lower overall [SMM Analysis]

This week, stainless steel product and raw material prices pulled back in tandem, with industry smelting margins remaining in a loss-making pattern and the overall cost side center shifting further downward. Based on 304 cold-rolled product calculations, steel mill profitability pressure remained pronounced this week, with margins at -0.25% based on current raw materials and -2.56% based on inventory raw materials. Losses on inventory raw materials were deeper, and production and operating pressure on steel mills continued to intensify. Overall, product prices weakened along with futures, and raw materials followed the decline, but amid the weak market backdrop, industry demand and purchasing continued to contract, leaving the industry-wide loss pattern unrepaired.

Nickel-based raw material prices came under further downward pressure this week, with bearish trading sentiment dominating market movements. The expected September-October peak season recovery for stainless steel has completely failed to materialize, end-user rigid demand remained sluggish, and steel mills remained mired in long-term losses, with persistently low acceptance of high-priced nickel raw materials and increasingly cautious purchasing sentiment. Meanwhile, high-grade NPI port inventories stayed high, and the loose supply pattern remained unchanged, further amplifying weak market expectations and driving continued declines in nickel pig iron quotes. As of this Friday, the import duty-paid price of 10-12% grade Indonesian high-grade NPI at Chinese ports fell by 25 yuan/nickel unit to 1,085 yuan/nickel unit, with nickel-side cost support continuing to weaken. This week, stainless steel scrap prices also remained in the doldrums, with cost substitution advantages unable to offset bearish fundamental pressures. During the week, SS futures continued to hit bottom, with product and NPI prices falling in tandem, extending the bearish resonance between futures and spot markets amid an overall subdued market atmosphere. Although stainless steel scrap still holds a significant cost substitution advantage over NPI, the core bearish factors of absent peak season demand and sluggish end-user transactions continued to ferment. Coupled with steel mill production cuts due to losses and a pullback in September production schedules, raw material purchase willingness cooled noticeably, scrap market trading remained persistently weak, and bottom support for prices continued to erode, making a near-term reversal of the weak trend unlikely. As of this Friday, mainstream 304 off-cuts in Shanghai fell by 200 yuan/mt to 10,100 yuan/mt excluding tax.

Chrome-based raw material prices pulled back slightly, showing a weak-but-supported pattern. This week, high-carbon ferrochrome followed the weak stainless steel market downward, with the industry's own loose supply, sluggish market trading, and the spread of pessimistic expectations from the failed peak season dragging ferrochrome prices into a slight correction. However, the raw material side provided some phased support, as overseas chrome ore prices edged up on narrower overseas shipments and news of ferrochrome enterprises resuming production, limiting ferrochrome's downside room from the cost side and keeping this week's decline relatively contained. As of this Friday, mainstream high-carbon ferrochrome prices in Inner Mongolia fell 50 yuan/mt (50% metal content) MoM to 7,800-7,900 yuan/mt (50% metal content).

Overall, stainless steel prices across the entire industry chain weakened in tandem this week. Weakness in finished products, compounded by disappointing peak-season demand, dragged down nickel pig iron, steel scrap, and ferrochrome across the board, while steel mills continued to incur losses. With little prospect of a substantive recovery in end-use demand in the near term, steel mills are likely to maintain subdued raw material purchasing, leaving further downside room for raw material prices. The cost center of stainless steel is expected to remain in the doldrums.