- Stainless futures retreat after rally
- Supply pressure weighs on sentiment
Mysteel Global: China’s stainless steel futures prices tumbled from their highest level in over two and a half years this week, as both technical and fundamental factors brought an end to a sharp rally, Mysteel Global noted.
On May 14, the most-traded stainless steel contract on the Shanghai Futures Exchange fell to Yuan 14,965/tonne ($2,206/t), down Yuan 815/t or 5% from the recent peak of Yuan 15,835/t reached on May 6, exchange data show.
Mirroring this sentiment, on the same day Tsingshan Group, China’s largest stainless steelmaker, lowered its list prices for both cold- and hot-rolled coils by Yuan 200/t. In the domestic spot market on May 14, Mysteel assessed the price of 304-grade stainless cold-rolled coil in Wuxi, East China, at Yuan 15,350/t in-warehouse and including tax, lower by Yuan 350/t from May 6.
Profit-taking by investors, weaker cost support and sluggish demand accounted for much of the pullback in stainless prices, a Mysteel analyst suggested. For now, market opinion remains divided about whether these are pointers to a serious retreat or just a momentary flicker.
Bullish sentiment fades
Bullish factors evident earlier – including the geopolitical risk premium that had been propping up metal prices – began diminishing last week on expectations that the United States and Iran were close to reaching a deal to end their war, as reported.
In parallel, Indonesia’s tightening of nickel ore supply and news that Jakarta plans to soon finalise its export duties and a windfall tax on nickel products have also been fully priced in by market participants.
Moreover, Indonesian Energy and Mineral Resources (ESDM) Minister Bahlil Lahadalia has decided to postpone the planned adjustment of mining royalties for commodities including copper, tin, nickel, gold, and silver in order to develop a more refined proposal, as reported – a move that added further downward pressure on nickel prices.
Without fresh catalysts, investors took profits this week, triggering a sharp technical decline in nickel prices.
The selloff then spilled over into the stainless steel market, dragging futures lower and souring market sentiment.
Cost support weakens
The cost support for spot stainless prices has loosened in step with falling prices of raw materials such as ferrochrome, the analyst noted.
On May 14, Mysteel assessed the price of 55% high-carbon ferrochrome in Inner Mongolia, the key reference price in the domestic FeCr market, at Yuan 8,450/t, 50Cr, ex-works including VAT, down Yuan 25/t on week.
Meanwhile, China’s spot prices of nickel pig iron will also face pressure as falling prices of imported nickel ore from the Philippines are undermining cost support for the ferroalloy.
Supply rises, demand lags
Stainless supply pressures are building. Mysteel’s most recent survey of 43 Chinese stainless mills suggests a modest increase in crude stainless production this month. Total output among the surveyed mills is scheduled to reach 3.76 million tonnes which, if realized, would represent a 0.6% uptick from April.
However, both domestic and export demand is lackluster. The recent high seen in spot stainless prices has kept end-users purchasing cautiously and only to meet their immediate production needs, Mysteel Global learned. As such, stainless inventories remain elevated.
Mysteel’s survey among 89 warehouses across six major Chinese cities that are regularly monitored showed that as of May 14, total stainless steel stocks stood at around 1.14 million tonnes.
Moreover, rising export costs stemming from the EU’s Carbon Border Adjustment Mechanism, combined with weak global manufacturing momentum, could dampen China’s stainless exports.
Outlook
Looking ahead, SHFE stainless prices are expected to rebound in the near term, with solid support at Yuan 14,550-14,600/t, the Mysteel analyst believes. High raw material costs continue to provide a floor, but with supply rising and demand lacking momentum, any upside potential is likely to be limited, he explained.
Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.
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