[SMM Stainless Steel Daily Review] Stainless Steel Futures and Spot Prices Retreated After Rapid Rise Post-Holiday, Market Lacked Fundamental Support

SMM, May 8: SS futures continued their downward pullback trend. SS futures dropped rapidly at the opening of the night session, then moved sideways. The downward fluctuation trend continued after the daytime session opened. As of the midday close, the most-traded SS contract was quoted at 15,520 yuan/mt. Spot market side, affected by the continuous pullback in futures, the stainless steel spot market still held confidence in the outlook, with spot quotes remaining firm. Downstream end-users mainly made just-in-time procurement, and overall trading showed mediocre performance.

The most-traded SS futures contract fell back. At 10:15 AM, SS2605 was quoted at 15,420 yuan/mt, down 290 yuan/mt from the previous trading day. Spot premiums for 304/2B in the Wuxi area were in the range of 200-400 yuan/mt. In the spot market, the average price of cold-rolled 201/2B coils in Wuxi rose by 100 yuan/mt; for cold-rolled trimmed-edge 304/2B coils, the Wuxi average price remained flat while the Foshan average price rose by 50 yuan/mt; cold-rolled 316L/2B coils in the Wuxi area remained flat; for hot-rolled 316L/NO.1 coils, the Wuxi quote rose by 150 yuan/mt; cold-rolled 430/2B coils in both Wuxi and Foshan remained stable.

The current stainless steel market was driven by wild swings in futures, with spot quotes pulling back after surging. The short-term price increase exceeded expectations and had limited correlation with its own fundamentals. Downstream acceptance was insufficient, and trading showed phased characteristics. This week was the first week after the Labour Day holiday. Earlier, the futures surge drove the market to rush to buy amid continuous price rise and hold back amid price downturn, coupled with restocking demand due to insufficient pre-holiday stockpiling and purchases by basis-trading institutions, trading warmed up in phases. However, after futures pulled back, trading returned to sluggish levels, as real demand did not match the price increase, and downstream purchasing remained cautious. Futures side, SS futures this week showed a pattern of "rising first then pulling back, fluctuating at highs overall," with the core drivers being Middle East geopolitical conflicts and changes in industry chain expectations. After the holiday, the easing of Middle East conflicts drove non-ferrous metals collectively higher, with SS futures following the rally to 15,835 yuan/mt, hitting a new high since September 2023. Subsequently, expectations of the Strait of Hormuz reopening eased sulfur shortage concerns, and SHFE nickel's decline dragged SS lower, but overall prices remained at highs, with price fluctuations mainly relying on news-driven factors and weak fundamental support. Supply and inventory side, steel mills enjoyed good profitability and strong production willingness, with production schedules staying high. The estimated production schedule for May remained elevated, and supply pressure persisted. This week, concentrated arrivals from steel mills eased the previous shortage of certain specifications. Combined with sluggish trading after the futures pullback, arrivals exceeded trading volume, pushing social inventory to stop destocking and rebound to 955,200 mt, ending the continuous destocking trend. Meanwhile, basis-trading institutions held relatively large positions, and the risk of selling pressure from hidden inventory should not be overlooked.

Cost side, driven by the strengthening of SHFE nickel and SS futures, high-grade NPI quotes continued to rise, with reduced supply of high-grade NPI intensifying tightness. Stainless steel scrap followed the rally in tandem, moving in line with finished product prices. As finished product price increases covered raw material cost increases, steel mill profits maintained a relatively good level, further strengthening the willingness for high production schedules and providing support for subsequent supply expansion. Overall, rising costs and low inventory provided market support, and market confidence was sufficient, but price increases mainly relied on news, with downstream caution and weak real demand. Additionally, steel mills maintained high production schedules with loose supply, and the traditional consumption off-season was approaching, while futures and spot institutions held relatively large positions with significant selling pressure. Comprehensive analysis suggests that if futures fluctuate, prices may see a pullback. Going forward, attention should be paid to the Middle East situation, futures trends, downstream demand, and steel mill production schedules.