Indonesian Policies Drive Surge in Stainless Steel Profits

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At the beginning of the new trading week, stainless steel futures initially surged before quickly pulling back, showing clear resistance at higher price levels. At the same time, year-end funding and settlement pressures have made spot market sentiment noticeably more cautious.

This raises a key question: has the policy-driven rally already been fully priced in, or is the market still adjusting? And more importantly, where is stainless steel headed in May?

I. April Stainless Steel Price Performance

April was heavily influenced by frequent policy developments in Indonesia, which repeatedly reshaped market expectations.

Two key events stood out:

• The implementation of Indonesia’s new HPM nickel ore pricing policy in mid-April

• Market expectations of a production suspension at Weda Bay toward the end of the month

These factors triggered two strong rounds of price increases across the stainless steel chain.

By April 27:

• Stainless steel futures had risen by around 1,100 yuan/ton (+7%+)

• Spot 304 (Hongwang) prices increased by about 700 yuan/ton (~5%)

• 201 grades saw a smaller increase of 100–150 yuan/ton

• 430 series remained largely unaffected, as it is less sensitive to nickel cost fluctuations

Overall, the rally was clearly driven by cost expectations and policy sentiment rather than demand fundamentals.

II. Impact of Indonesia’s HPM Policy and Weda Bay Supply Risk

1. HPM Policy: Higher Cost Floor, But Premium Compression

On April 15, Indonesia officially implemented its revised HPM pricing mechanism for nickel ore.

Market feedback in the following days showed:

• Existing contracts are still being settled at previous pricing levels

• New contracts are entering a negotiation phase

• Pricing structure is becoming more complex and less transparent

The new HPM formula introduced major changes:

• Higher adjustment coefficients

• Inclusion of cobalt, iron, and chromium into pricing calculations

This means nickel ore quality differences now significantly impact valuation.

However, it is important to understand one key point:

The HPM adjustment does not directly translate into a proportional price surge. Instead, it raises the pricing baseline while compressing the premium space.

In other words:

• Floor prices move higher

• Premium negotiations become tighter

• Overall price center shifts upward, but not explosively

This explains why the market reaction has been strong but still controlled.

2. Weda Bay: Supply Uncertainty Becomes the Key Variable

Another major driver is the expected production disruption at Weda Bay.

Key developments:

• Mine quota expected to be exhausted by mid-May

• Potential maintenance shutdown afterward

• 2026 quota reportedly reduced by more than 70% compared with 2025

• Export cap significantly tightened

At the same time, approval for additional quota under Indonesia’s RKAB system may take:

• Up to 35 working days per application

• Possibly extending into June or July before new approval is granted

This creates a real risk of a temporary supply gap, which has been partially priced into the market.

III. Nickel Cost Movement and Stainless Steel Profit Shift

Nickel and ferroalloy prices moved in stages during April:

• Nickel ore rose from $71.22 → $73.94 per wet tonne

• Ferronickel increased from 1,100 → 1,115 yuan per nickel

The key driver was clearly the HPM policy shock, followed by expectations of supply tightening at Weda Bay.

Meanwhile, ferrochrome prices stabilized toward the end of the month after major steel mills such as TISCO and Tsingshan raised May tender prices, improving overall sentiment in the alloy market.

Profit Structure Changes in Stainless Steel

The most notable change in April was the divergence in profitability across different grades:

304 Stainless Steel:

• Cost increased by ~153 yuan/ton

• Selling prices rose faster than raw materials

• Profit margin jumped from 0.72% → 5.87%

• Peak profitability occurred after mid-to-late April sentiment acceleration

However, this margin is not guaranteed to last. If ferronickel costs catch up in May, profitability may quickly compress.

201 Stainless Steel:

• Costs decreased by ~50 yuan/ton

• Market sentiment improved

• Profitability turned positive to +2.12%

400 Series:

• Costs dropped slightly

• But demand weakness persisted

• Profit remained in loss territory (-1.2% to -1.9%)

IV. Production and Inventory: Supply Pressure Still Building

1. Production Trends

April crude stainless steel output:

• Total: 3.77 million tons (-0.65% MoM)

• Still historically high compared with seasonal averages

By segment:

• 300 series: +1.1% MoM (remains strong)

• 200 series: -3% MoM

• 400 series: -1.5% MoM

Despite small adjustments, the overall supply level remains relatively high.

Given improved profitability in 304 and 201, production intensity is expected to remain elevated in May.

2. Inventory Situation

By late April:

• Social inventory dropped from 1.13M → 1.07M tons

Key observations:

• Strong destocking in the second half of April

• Driven mainly by price-led restocking

• But year-on-year inventory remains elevated

Segment differences:

• 400 series: still significantly higher YoY

• 300 series: relatively healthy (-4% YoY)

• 200 series: near neutral

This suggests that while inventory pressure has eased, it has not disappeared.

V. May Outlook: Cost Support vs Demand Uncertainty

Looking ahead, May is likely to be a transitional month where both bullish and bearish factors coexist.

Supporting factors:

• Higher cost base from nickel policy changes

• Relatively healthy 300-series inventory

• Early-month seasonal restocking demand

Pressure factors:

• Rising steel mill production

• Slowing construction and downstream activity later in the month

• Seasonal shift toward off-peak conditions

• Persistent high inventory levels

Key Market Scenarios for May

Scenario 1: Demand Holds Up

• Strong post-holiday restocking

• Temporary “off-season is not weak season” effect

• Prices remain firm in early May

Scenario 2: Demand Weakens

• Restocking weaker than expected

• Production increases faster than consumption

• Prices shift into gradual correction mode

Key Risk to Watch: Weda Bay Approval Timing

The biggest external variable remains Indonesia’s policy execution:

• If quota approval is delayed → supply tightening intensifies → cost support strengthens

• If approval is fast or production disruption is minimal → risk premium quickly fades

This will directly determine whether nickel costs remain supportive or begin to unwind.

Conclusion

The stainless steel market is currently caught between:

• Policy-driven cost support

• Weakening seasonal demand

• High but slowly stabilizing inventories

In the short term, volatility is likely to dominate rather than a clear directional trend. The real turning point in May will depend on two factors:

1. Indonesia nickel supply policy execution

2. Post-holiday downstream demand strength

Until clearer signals emerge, the market will likely continue a tug-of-war between cost support and demand pressure, with prices fluctuating within a relatively wide range.

http://www.shidemetal.com
Wuxi Shide

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