Stainless steel costs have collapsed at the bottom.

23 Aug,2019

Stainless steel costs have collapsed at the bottom.
　　Since the beginning of 2015, nationwide fixed‑asset investment has continued to decline, exerting a significant drag on industrial production. Within the domestic demand structure, rising direct supply from stainless‑steel producers has kept prices under downward pressure, prompting some traders to cease operations and exit the market. Meanwhile, subdued investor confidence has led remaining traders to aggressively reduce inventories, driving a sharp drop in sector‑wide stock levels to their lowest point this century.
　　Since the beginning of 2015, constrained by a sustained slowdown in economic growth, China’s stainless steel industry has experienced weak production and demand growth, with supply continuing to outpace demand. Looking ahead, aside from a recovery in the real estate markets of first-tier cities—gradually spreading to select second- and third-tier cities—other pressures remain substantial. As a result, the Chinese stainless steel market is expected to remain subdued throughout this year and into the first half of 2016, making a sustained, broad-based price rally unlikely.
　　Weak nationwide demand for stainless steel, coupled with the continued decline in raw material prices such as iron ore, has led to volatile downward pressure on stainless‑steel prices across the country. According to market monitoring data, by the end of August this year, the sharp drop in the prices of iron ore and other smelting inputs caused the cost floor to collapse, serving as the primary driver behind the decline in stainless‑steel prices.
　　How should we interpret the Federal Reserve’s recent announcement to delay interest-rate hikes? First, it signals that the global economy remains sluggish; second, it suggests that prices for stainless steel and metallurgical raw materials will likely stay subdued.
　　From a domestic perspective, the trajectory of China’s stainless‑steel market hinges on three key factors: first, whether approved investment projects can swiftly and fully break ground; second, whether the real estate sector can lead the recovery; and third, whether international prices for iron ore and energy will halt their decline. Global mining giants remain committed to their strategy of leveraging low‑cost advantages to cut prices and squeeze competitors, meaning that international iron‑ore prices are likely to continue falling. Moreover, with oil—another critical energy source—also trading at subdued levels, it is hardly surprising that Chinese stainless‑steel prices are under downward pressure. Only when iron‑ore prices stabilize and begin to rise, and when energy prices such as oil and coal also stabilize and rebound, can the national stainless‑steel market finally stop falling and start to recover. At present, international prices for iron ore and energy commodities continue to plunge sharply—something that many institutions which, in recent years, accused mining majors of jacking up prices and raking in exorbitant profits had not anticipated.

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