China: Stainless steel price rally may not sustain

China’s stainless steel industry, since mid-December last year, has been witnessing a rising trend. The main 2204 contract rose from RMB 15,525/tonne (t) ($2,407/t) on 10 Dec’21 to RMB 18,740/t ($2,905/t) on 18 Feb’22, which was an increase of RMB 3,215/t ($508/t) in more than two months, an increase of 20% in this period. Analysts believe that the tight supply and cost support are the main reasons for this increase in the future prices of stainless steel.

Price rally may not sustain

A non-ferrous metal analyst at CITIC Construction Investment Futures said that since mid-December last year, upstream prices have influenced the continuous rise in stainless steel futures prices. During this period, news such as the bombing of the ferro-nickel project in Myanmar and the possible imposition of export tariffs on ferro nickel in Indonesia continued to drive up nickel prices. Nickel inventories also continued to decline, which made the cost of stainless steel production rise significantly.

“Since mid-December last year, Shanghai nickel futures prices have risen by about 24%, while stainless steel futures have risen by about 20%. This becomes evident as the driving force of the rise in stainless steel prices resulted from that of the upstream industry prices. ,” the analyst said, as per a report in Lange Steel.

A non-ferrous metals researcher at Soochow Futures believes that in terms of supply, the overall output of stainless steel decreased from January to February. Overseas demand also remained strong. “Stainless steel maintained a strong trend in early this year mainly due to rising costs of raw material and an expected tightening of supply, the researcher said.

Another research analyst believes the rise in stainless steel futures is an upward correction after a periodic decline. From a high in September last year to mid-December, stainless steel futures fell by nearly 25%, and then ushered in a correction after mid-December last year.

In terms of the spot market, stainless steel stocks were replenished after the Spring Festival, but after the replenishment, the spot market gradually cooled down, and procurements became need-based.
In addition, the Wuxi region has been significantly affected by the pandemic, and the market has slowed down, which has also exerted a certain pressure on stainless steel prices.

At present, the prices of stainless steel are at a historic high, and because of the current prices of raw materials, the 304 stainless steel grade is still near the cost line. Therefore, the current prices are not unreasonable, feel market sources.

The current prices of nickel are at high levels. However, the long-term supply worries are low since the prices of raw materials may have room to fall, and downstream demand is still weak.

There has been news that stainless steel production has resumed and supply is expected to normalize by end-February.
Inventory has been slowly accumulating recently, and the cost-side push is expected to gradually weaken in the mid-term and will continue to weaken. Huatai Futures believes there will be a seasonal inventory pile-up of stainless steel during the Spring Festival, but the stock levels with the downstream users was low before the festival. Thus, the demand for restocking is expected after the festival on the back of increased demand.

At the same time, because the Philippines is still experiencing a rainy season, domestic supply of nickel ore is tight, and some ferro nickel enterprises have reduced production. Therefore the cost of production of ferro nickel may be high, which again supports the prices of stainless steel.
Buying may increase if there is a dip in stainless steel futures after the restocking. The commodity may wait for a new round of destocking during the peak consumption season.