Scrap tightening and a major nickel-cobalt producer's output cut pushed SHFE stainless steel to levels not seen since 2023 — yet physical demand remains conspicuously absent heading into the May Day break

Market Overview According to SMM data, during the first trading week following the Lunar New Year holiday (February 24 – February 27, 2026), the dominant stainless steel contract (SS2604) opened high and maintained a strong trend, driven by significantly rising raw material costs. By the close on February 27, the contract price had climbed to 14,150 CNY/mt ($2,065.69/mt) , an increase of 385 CNY/mt ($56.20/mt) or +2.80% compared to the pre-holiday closing price of 13,765 CNY/mt ($2,009.49/mt) . In the early post-holiday period, the market's upward logic was primarily dominated by rising costs on the supply side. However, as the price center shifted upward rapidly, the substantial accumulation of social inventory during the holiday formed a tangible suppression on the upside potential. Consequently, futures prices maintained a fluctuating struggle within the 14,100–14,200 CNY ($2,058.39–$2,072.99) range. Macroeconomic Analysis From a macro perspective, the market is navigating an interplay between reasonably ample domestic liquidity and uncertainties regarding overseas trade policies. Domestic: On February 25, the central bank conducted a 600 billion CNY ($87.59 billion) one-year Medium-term Lending Facility (MLF) operation. This continued to maintain ample liquidity in the banking system, providing macro support for the traditional "Golden March and Silver April" peak consumption season and stabilizing market expectations. Overseas: The U.S. Trade Representative stated they would continue to advance the Section 301 investigation regarding the Phase One trade agreement, with proposals to raise "global import tariff" rates from 10% to 15% or higher. Potential tariff changes have intensified uncertainty in the external macro environment, which may have a negative impact on future export expectations for stainless steel and related end-products. Fundamentals: Inventory & Demand Fundamentally, the post-holiday market faces the reality of a massive inventory buildup while end-user demand is still in a recovery phase. Inventory: Latest SMM data shows that, due to the long Spring Festival holiday, social inventory significantly increased to 1.0161 million tons this week. This is an increase of 121,600 tons compared to the pre-holiday level of 894,500 tons , breaching the one-million-ton mark. Spot Transactions: The market is currently in a gradual restart phase. Downstream processing factories have not yet fully resumed work, and current spot circulation is mostly concentrated on resource allocation between traders. The end-market's actual ability to digest current high-priced resources remains to be verified after enterprises fully resume work next week. Sentiment: In the short term, high inventory levels pose significant pressure on prices. However, supported by expectations for the "Golden March and Silver April" peak season, holders' sentiment remains temporarily stable, with no large-scale sell-offs observed. Cost Analysis The significant strengthening of the cost side was the core driver for the high market opening this week. Driven by news of tighter Indonesian nickel ore quotas and fluctuating rises in nickel prices post-holiday, there is a strong willingness to support prices on the raw material side. High-grade Nickel Pig Iron (NPI): As of February 27, quotes were raised significantly, rising by 33.5 CNY ($4.89) in a single week to 1,085 CNY/nickel point ($158.39/nickel point) . High Carbon Ferrochrome: Prices remained temporarily stable at 8,550 CNY/50 basis tons ($1,248.18/50 basis tons) . The expectation of tight ore supply materialized quickly after the holiday, substantially raising the immediate production costs for steel mills. The upward shift in the cost center effectively limited the room for market correction and forced a passive, steady rise in the center of spot transaction prices. Outlook & Strategy Overall, the stainless steel market in the first week after the holiday presented a tug-of-war pattern: "Strong Expectations & High Costs" vs. "Weak Reality & High Inventory." While the sharp rise in NPI prices established a tone for a strong fluctuating market, the social inventory exceeding one million tons—coupled with end-user demand that has yet to kick in—constrained further upside potential. Looking ahead to next week, the market trading logic will gradually shift from "sentiment-driven" to "fundamental verification." Short-term: Futures prices are expected to maintain a strong fluctuation at high levels. Medium-to-long-term: The trend will depend on the actual realization of demand during the "Golden March and Silver April" peak season after downstream sectors fully resume work. Industrial clients are advised to closely monitor the inventory inflection point (destocking) and actual spot transaction conditions next week. Carefully assess the risks of chasing highs and reasonably utilize hedging tools to manage exposure.

SMM data showed that this week (February 2-6, 2026), as the Chinese New Year holiday approached, the most-traded stainless steel contract (SS2603) was hit by both unexpected macro headwinds and pre-holiday risk-off sentiment, trending in the doldrums. By February 6, the contract price pulled back to 13,780 yuan/mt, down 380 yuan/mt (-2.68%) from the previous Friday's closing price of 14,160 yuan/mt. The week saw sharp fluctuations, starting with a "Black Monday" where continuous plunges in gold and silver prices triggered a "sell-off" in the nonferrous sector, with the most-traded contracts for SHFE tin and aluminum alloys hitting limit-down; stainless steel also briefly touched the limit-down board. Although a corrective rebound followed, the rebound momentum was limited under the dominant pre-holiday risk-off sentiment, and the price center significantly shifted lower. From a macro perspective, tightening fears triggered by "hawkish" personnel changes were the core driver of this week's plunge. Overseas, the nomination of "hawkish" candidate Kevin Warsh as the new US Fed chair directly strengthened market expectations for monetary policy tightening. This shock sent the US dollar index and US Treasury yields soaring, putting dollar-priced nonferrous metals under pressure from bears. Additionally, the US ISM Manufacturing PMI rebounded to 52.6, indicating economic resilience, leading to a sharp revision in market pricing of the interest rate cut path. Domestically, although the January Manufacturing PMI fell to 49.3%, the central bank conducted 800 billion yuan in 3-month outright reverse repo operations to fully maintain ample liquidity in the banking system, showing clear policy support intentions, which cushioned external shocks to some extent. From a fundamental perspective, the spot market entered a "winding-down" phase, with inventory building up as expected. The latest SMM data showed social inventory rose to 868,600 mt this week, up about 15,600 mt from 853,000 mt last week, continuing the inventory buildup trend. In spot transactions, traders gradually left for the holiday, reducing market activity to a freezing point, with only sporadic rigid demand restocking during futures rebounds. Despite the inventory buildup, current inventory remains in a low range, and traders face no panic shipment pressure. Coupled with positive expectations for the post-holiday "Golden March, Silver April" peak season, suppliers maintained relatively stable sentiment, and spot prices, though adjusted with the futures, did not collapse. Cost side and supply side both showed weakness. By February 6, high-grade NPI offers fell to 1,040 yuan/mtu, down 14 yuan from last week, while stainless steel scrap prices also weakened, leading to lower production costs for steel mills. Although some mills began maintenance in February, with planned production expected to drop significantly, this positive factor was offset by a complete halt in downstream demand during the holiday. Under weak supply and demand, cost-side support weakened, but mills' thin profits still formed a bottom-line defense for prices. Overall assessment: This week's market performance was a result of the combined effects of "hawkish macro shocks" and "pre-holiday capital risk aversion." Kevin Warsh's nomination led to a surge in the US dollar, triggering a revaluation of the non-ferrous metals sector, while capital outflows ahead of the Chinese New Year amplified the decline. Although futures saw a significant correction, low inventory of 868,600 mt and expectations for strong post-holiday demand provided a solid cushion. Looking ahead to the Chinese New Year and the initial period after the holiday, the market will enter a de facto shutdown phase, with short-term movements driven by capital sentiment. After the holiday, the focus of market activity will quickly shift to verifying the "extent of inventory buildup" and "demand recovery," paying attention to whether the increase in inventory is manageable and the pace of downstream resumption of operations. It is expected that post-holiday futures will attempt to stabilize and rebound, supported by cost factors and expectations.

【Futures Market Review】The most-traded SHFE nickel contract closed at 126,320 yuan/mt during the daytime session, up 0.57%. The most-traded stainless steel contract closed at 12,790 yuan/mt, up 0.39%. 【Industry Performance】In the spot market, the spot price of Jinchuan nickel was adjusted to 127,875 yuan/mt, with a premium of 2,250 yuan/mt. SMM refined nickel was priced at 126,925 yuan/mt. The average price of imported nickel was adjusted to 125,875 yuan/mt. The average price of battery-grade nickel sulphate was 28,050 yuan/mt, with a premium of 2,325 yuan/mt (Ni contained) over nickel briquette. The profit margin for producing nickel sulphate from nickel briquette was -3.5%. The ex-factory price of 8-12% high-grade NPI was 974 yuan/mtu, and the profit margin of 304 stainless steel cold-rolled coil was -7.85%. SHFE refined nickel inventory stood at 30,332 mt, while LME nickel inventory was 204,252 mt. SMM stainless steel social inventory accumulated to 999,400 mt. NPI inventory in major domestic regions was 24,173.5 mt. 【Market Analysis】The futures market continued to fluctuate upward during the day, mainly following the overall market trend. Fundamentals side, there was no significant fluctuation recently. Despite intensified losses for some NPI producers, production remained stable. However, NPI quotations have approached the level of the early-year fluctuation range. Tsingshan recently tendered 970 yuan/mtu for May, and the subsequent downside room is relatively limited. The nickel sulphate chain price remained relatively stable, with MHP prices generally stable with a slight rise, providing some support. Downstream new energy still has short-term restocking demand, and the medium and long-term new energy chain is expected to rise. The Indonesian royalty is about to be implemented, which may bring slight positive feedback to the futures market, but the subsequent upward momentum is lacking. It is crucial to monitor whether there will be further disturbances from a macro perspective. Under the premise of tariff concerns, it is recommended to focus on short-term trading for the 06 contract.

【4.1 Morning Meeting Minutes】Current market transaction prices: For pyrometallurgical ore, the weekly price of SMM's Indonesia local ore at 1.6% is $51/wmt. For hydrometallurgical ore, the weekly price of SMM's Indonesia local ore at 1.2% is $26/wmt. Indonesia's pyrometallurgical nickel ore may see another price increase in April, with a premium of $23-25 currently under negotiation for April. The CIF price of hydrometallurgical ore may remain temporarily stable but fluctuate downward.

[LME Nickel Closed Higher on Monday, February 17] On Monday, February 17, 2025, LME nickel closed up by $80 to $15,535/mt, with LME nickel inventory increasing by 840 mt to 184,692 mt. Overnight, the most-traded SHFE nickel contract closed up by 370 yuan to 124,390 yuan/mt; the most-traded SHFE stainless steel contract closed up by 5 yuan to 13,065 yuan/mt.