Careful, my ass. This is an Apple product, and a pricey one at that. Under no circumstances would it be acceptable for the steel case to chip or peel.
I've worn the same steel watch for over 20 years and you'd have to look at it under a magnifying glass to see any scratches on it.
According to Apple's own "Steel" video, the case is made from forged, high-strength steel alloy and then milled and polished to its final shape and finish. This is not some cheap pot metal with a chrome coating that would be prone to peeling.
https://www.apple.com/watch/apple-watch/
More than likely, that's just a reflection of something.
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What was the source for this photo?