Frequent Favourable Macro Front Before the Holiday: Can Stainless Steel Futures Maintain Their Uptrend? [SMM Analysis]

As of September 27, the SS11 contract closed at 13,475 yuan/mt, up 110 yuan/mt WoW. However, it plunged to 13,180 yuan/mt during the Friday night session and further dropped to 13,070 yuan/mt on Monday, hitting a four-year low. On Tuesday, it surged significantly. By the Friday night session, the 11 contract had risen to 13,635 yuan/mt.

Macro front, the US Fed announced a 50 basis point interest rate cut, lowering it to 4.75%-5%. However, the rate cut was within market expectations and had been priced in by institutions, turning the positive into a negative. Coupled with the already weak fundamentals of stainless steel, stainless steel futures experienced a sharp decline. Domestically, favourable macro factors emerged frequently. On September 24, PBoC Governor Pan Gongsheng stated at a State Council Information Office press conference that the central bank would soon lower the reserve requirement ratio by 0.5 percentage points and provide about 1 trillion yuan of long-term liquidity to the financial market. It will also guide commercial banks to reduce the mortgage rate on existing home loans to the level of rates on newly issued home loans, with an expected average reduction of about 0.5 percentage points. On September 26, the Politburo meeting emphasized promoting the stabilization of the real estate market and increasing loan support for "white list" projects.

From the fundamentals, current stainless steel spot prices are in an oversold state. Although the spot market actively raised prices by 100-200 yuan/mt on Friday and Saturday, there were no actual transactions to support. Raw material prices have declined somewhat, but the expanded profits of stainless steel have reduced the willingness of steel mills to cut production. The weakening support from raw material costs also exacerbates bearish sentiment in the futures market. As transactions improved before the National Day holiday and inventory data was relatively good, coupled with recent production cuts by stainless steel mills, the SS contract continued to rise. However, it is understood that this is mainly for traders to restock cargoes of specifications, with downstream maintaining restocking as needed. In October, the production of 300-series crude steel is expected to remain high with limited reduction. The large arrivals after the holiday will lead to significant inventory accumulation. Additionally, with the resumption of cold rolling at Indonesia's Yongwang, resources have arrived in Wuxi and Foshan, suggesting that stainless steel futures may still face pressure after the holiday.