The stainless steel market is currently in its seasonal low-demand period, yet production costs remain a firm floor under prices. Recently, futures have strengthened amid volatility, with clear support coming from the raw materials side. On July 21, three major 201-grade stainless steel producers simultaneously introduced measures to stabilize the market in both directions. However, the fundamental oversupply situation in the overall market for July has not seen a fundamental improvement, and the path for any significant price rally remains uncertain.

Nickel Raw Material Dynamics

Indonesia's entire nickel industry control policy for 2026 is set to reshape the global nickel supply curve, making it the most critical fundamental driver for the nickel and stainless steel chain this year. The approved RKAB quota for Indonesian nickel ore in 2025 was 379 million wet metric tonnes (wmt), but this will be directly slashed to 260 million wmt in 2026, a reduction of over 30%. Additionally, the quota approval process is shifting from a fixed three-year cycle to an annual dynamic review, significantly weakening long-term production expectations for mines.

Supplementary quota approvals remain strictly limited. The Indonesian Ministry of Energy and Mineral Resources has clearly stated in July that it will not fully open the door for new quotas, only issuing small supplementary allowances for local smelters facing extreme raw material shortages. This has completely dashed previous market expectations of a significant quota expansion, perpetuating the expectation of a supply gap at the mine level. Theoretical calculations suggest a certain raw material deficit for domestic Indonesian smelters throughout the year, forcing nickel pig iron (NPI) and mixed hydroxide precipitate (MHP) prices to remain high, which in turn continues to raise raw material costs for Chinese stainless steel producers.

Stainless Steel Mill Developments

On July 21, driven by strong supply and weak demand in the 200 series, along with high social inventory pressure, the three major 201-grade stainless steel producers each implemented different degrees of output reduction. For August, they have uniformly agreed to cut their supply by 20%. Specifically, Qingshan (QS) will reduce output by 85,000 tonnes, BGXCL by 40,000 tonnes, and BGDS by 35,000 tonnes. The mills' coordinated production cuts aim to alleviate the vicious cycle of low-price competition within the industry, reduce social inventory, and repair the spot market's fundamental condition.

In an environment of prolonged low-price competition and weakening trader confidence leading to discounted selling, the three major 201-grade producers have simultaneously rolled out a two-pronged strategy to stabilize the market. On one hand, they have set a unified minimum market price floor, directly halting the disorderly practice of continuous hidden price declines in the spot market. On the other hand, they are synchronously reducing total monthly resource supply to lessen the flow of material arriving at the market, thereby easing the pressure from continuously accumulating social inventory. The production cuts will lead to fewer arrivals, and with moderate inventory levels, prices will gain some support against further declines, helping to continue the destocking trend at Wuxi's warehouses.

Market Outlook

In the short term, raw material cost support combined with the mills' persistent price-supporting measures provides a floor for the market. However, the terminal demand during the low season is unlikely to release effectively. With bullish and bearish forces holding each other in check, the short-term market is likely to trade within a defined range. Looking ahead, the market should focus on the August production plans of major mills, the pace of future resource shipments, and the rate of further social inventory drawdown. For the medium-term outlook, key factors to watch include the final implementation of Indonesia's nickel ore quota approvals, the pace of downstream end-user resumption, the speed of inventory depletion, and the evolution of the overseas macroeconomic landscape. If these factors align favorably, the market could see a volatile upward trend.