Macroeconomic Pressures Weigh on Bulk Commodities, Raw Materials Plunge, While Stainless Steel Demand Struggles to Hold the Market

Macroeconomic headwinds weigh on bulk commodities while raw-material prices plunge, with stainless steel demand striving to provide bottom-line support.

Stainless steel spot prices dipped then rebounded this week. Raw-material prices softened, restoring mill production margins. Steel mills controlled shipment volumes. Social inventory saw little change, and inventory pressure shifted toward steel mills. The spot market featured weakness on both supply and demand sides. Recovery in downstream demand fell short of expectations. Going forward, close attention should be paid to mill production schedules, raw-material price movements and the recovery of end-user demand. Stainless steel prices are expected to move in a volatile pattern.

Stainless steel futures also dipped and rebounded this week. Early in the week, the front-month contract maintained the weak trend from last week and fluctuated at lower levels. On Wednesday, after the Fed’s interest-rate hike was finalized, prices swung sharply, bottomed out and staged a rebound before continuing to climb.

Trading volume surged mainly on Wednesday, while open interest kept declining throughout the week. Amid tightening macro expectations weighing on bulk commodities, market participants remained largely cautious and adopted a wait-and-see stance.

The active stainless steel futures contract settled at 13,695 this week, up 0.85% for the week, with an intra-week low of 13,290.

Spot Market

Stainless steel spot prices fluctuated this week. Following the Fed’s rate-hike announcement, bulk commodities faced downward pressure. On Wednesday, news of voluntary production cuts by the steel association lent price support. Stainless steel futures swung sharply, whereas spot prices stayed relatively steady.

Nevertheless, fundamental demand momentum for stainless steel remains insufficient to underpin prices. Improvements at downstream end-users have been modest. End-users only restock to cover rigid needs without proactive inventory building. Spot trading was fairly active only on Wednesday. Prices fell rapidly earlier in the week, prompting traders to cut prices to clear stocks.

Raw-material prices kept softening, markedly lowering steel-mill production costs and leaving mills with relatively comfortable profit margins. Implementation of subsequent production-control measures within production schedules merits continued monitoring. Social inventory was little changed over the week. Although mills restricted outgoing shipments, agents showed low enthusiasm for picking up goods. Consequently, inventory pressure shifted away from traders back to steel mills.

From a macro perspective, the international environment is volatile with heightened swings in overseas markets. Domestic fiscal stimulus has been slow to take effect, delivering limited impetus to the real economy. Export conditions remain highly uncertain due to macro factors. Persistent uncertainty lingers on the raw-material side. Steel mills maintain constrained shipments. Performance of the traditional peak season has disappointed. Market volatility will stay elevated, and the fundamental outlook hinges chiefly on the pace of demand recovery.

To sum up: raw-material prices keep softening; mill production profits have recovered notably; mills enforce shipment controls; social inventory remains flat; both supply and demand stay weak. Downstream consumption is dominated by rigid restocking. Going forward, it is critical to track raw-material prices, mill output plans, downstream demand follow-through and the roll-out of relevant policies.

Futures Market

Registered stainless steel warehouse receipts on the Shanghai Futures Exchange decreased by 3,527 tonnes week-on-week to 67,533 tonnes. Although warehouse receipts fell this week, they remain at a high level, representing substantial inventory pressure. The pace of inventory drawdown will be a key monitorable item ahead.

Stainless steel spot prices dipped then rebounded this week. Raw-material prices continued to soften. Steel-mill production margins improved. Mills controlled shipment volumes. Social inventory registered little change. Inventory pressure shifted toward steel mills, and the spot market saw weak conditions for both supply and demand. Downstream demand underperformed expectations. Market participants should keep an eye on mill production schedules and raw-material price trends. Stainless steel prices are projected to stay in a volatile range in subsequent periods.