[SMM Stainless Steel Daily Review] Stainless Steel Futures Strong and Spot Prices Firm, Trading Subdued as Labour Day Holiday Approaches

SMM, April 29: SS futures rose sharply. Driven by the continued strengthening of SHFE nickel, SS futures maintained a strong trend. As of the midday close, the most-traded SS contract was quoted at 15,505 yuan/mt. Spot market side, as SS futures continued to fluctuate at highs, stainless steel traders' confidence was boosted, and spot offers were generally at relatively high levels, with low-priced resources hard to find. Although the holiday was approaching and rapid price increases made downstream buyers cautious and wait-and-see, with most making just-in-time procurement, and transactions were slightly sluggish, spot prices were unlikely to pull back, supported by the strong performance of SS futures.

The most-traded SS futures contract strengthened and probed higher. At 10:15 AM, SS2605 was quoted at 15,475 yuan/mt, up 55 yuan/mt from the previous trading day. Spot premiums for 304/2B in Wuxi ranged from -5 to 195 yuan/mt. In the spot market, the average price of cold-rolled 201/2B coils in Wuxi remained flat; for cold-rolled untrimmed 304/2B coils, the average price in Wuxi rose 50 yuan/mt and in Foshan rose 125 yuan/mt; cold-rolled 316L/2B coils in Wuxi held steady; hot-rolled 316L/NO.1 coils in Wuxi rose 50 yuan/mt; cold-rolled 430/2B coils in both Wuxi and Foshan held steady.

The current stainless steel market was driven higher by SS futures, with spot offers strengthening in tandem and reaching highs not seen since 2023. However, the short-term price increase was relatively rapid and had a relatively weak correlation with changes in stainless steel's own fundamentals. End-user acceptance was limited, and actual transactions showed phased characteristics. Apart from relatively concentrated transactions at the initial stage of the rally, transactions gradually weakened after entering this week. Downstream end-user clients were cautious in purchasing, with purchases mainly for just-in-time procurement. Trading firms engaging in both spot and futures market accounted for a relatively high share of purchases. End-users showed no obvious signs of stockpiling ahead of the Labour Day holiday. Slitting and leveling processors saw sluggish business overall, and real demand failed to effectively match the price increase. Futures side, SS futures continued to strengthen this week, with the core driver being the sulfur shortage triggered by geopolitical conflicts in the Middle East. The supply disruption directly pushed up nickel production costs, driving SHFE nickel to rise sharply, and SS futures followed suit, successively breaking through previous highs, with the peak once probing to 15,670 yuan/mt, hitting a new high since September 2023. Market sentiment was significantly boosted, but upward momentum mainly relied on news-driven and cost side transmission, with relatively weak support from its own fundamentals. Supply and inventory side, mainly benefiting from the combined effects of active spot-futures arbitrage driven by the strengthening of SS futures, traders' margin concessions to facilitate shipments, and relatively low steel mill allocation volumes, stainless steel social inventory continued to decline recently. Traders reported that certain specifications were in short supply in the market. Additionally, traders had purchased at relatively low prices earlier and were in a low inventory state, with relatively small pressure on shipments, which to some extent supported spot prices in remaining firm. However, it should be noted that the inventory decline was partly supported by steel mills actively reducing allocations and hidden inventory held by trading firms engaging in both spot and futures market, rather than entirely driven by increased end-use demand. Cost side, driven by the strengthening of SHFE nickel futures, prices of high-grade NPI, stainless steel scrap, and refined nickel all trended upward recently. However, the price increases of all raw materials lagged behind stainless steel finished product prices, further expanding steel mill profit margins to above 3%, with profitability improving significantly. The divergence between raw material and finished product price increases further boosted steel mills' production enthusiasm, laying the foundation for subsequent supply expansion. Overall, although SHFE nickel strength drove SS futures higher, cost side provided support, and continued social inventory pullback eased some market pressure, the stainless steel price rally was primarily driven by news-related factors. Downstream end-users' cautious sentiment remained unchanged, real demand stayed weak, and hidden inventory posed potential selling pressure risks. Additionally, with steel mill profitability recovering, the high production schedule pattern will persist, keeping market supply ample. If futures experience fluctuations going forward, basis-trading institutions may concentrate on selling profitable positions, and stainless steel prices face certain downward correction possibilities.