SHFE 2308 nickel contract outperformed on July 6 and hit an intraday high of Yuan 167,080/tonne with an increase of over 5%, and closed the day at Yuan 165,760/t, up 4.78%. LME 3M nickel also posted a gain 0.54% at $21,305/t. Nickel prices have been surprisingly strong against the pessimism on the fundamentals.
1. Nickel inventory remained low
China's refined nickel inventory across 27 warehouses tracked by Mysteel showed a weekly fall of 1,138 t or 10.16% at 10,061 t as of June 30; the warrants inventory lost 553 t to 1,024 t; the spot nickel inventory slipped 535 t to 3,787 t, with nickel plate and briquette inventory dipping 339 t and 196 t respectively; and the bonded zone inventory shed 50 t to 5,250 t, per Mysteel data.
Source: Mysteel
The nickel inventory has been low as a whole recently and could hardly form a consistent upward trend apart from the phased increase when the imported NORNICKEL nickel arrived intensively.
2. Nickel import profit stuck in the negative
Strong US dollar has shut down China's import window. There were few imports of Nikkelverk nickel, SUMITOMO nickel and nickel briquettes, except for some NORNICKEL nickel that was priced with SHFE nickel.
3. Downstream demand showed signs of improving
China's apparent consumption of refined nickel stood at 27,200 t in May 2023, up 27.99% MoM and 24.09% YoY. The consumption totaled 106,100 t year-to-date and showed clear signs of improving in the second quarter despite a slight YoY drop.
Source: Mysteel
Specifically, the alloy sector, an important downstream application of refined nickel, posted a YoY gain of nearly 27.1% in terms of nickel consumption in the first five months at 88,500 t.
Source: Mysteel
4. News front also played a role
Nickel contract is extremely vulnerable to the news front and capital game when the warrants inventory is low.
On the same day of July 6, rumors came that the national bureau would purchase a variety of strategic metals, including nickel, as national reserves after the export restriction of some rare metals was released, which, however, was untenable as it was not a good time when nickel prices were high. In addition, a magnitude 5 earthquake struck the northeastern island of Sulawesi, Indonesia, and El Niño weather further hit the place.
Though the material impacts remained to be seen, the market sentiment has been influenced.
Follow-up nickel prices are subject to the following facets
1. US rate hike path
More rate hikes in the rest of 2023 seems to be a forgone conclusion per US Fed's June rate meeting minutes. There is an 89.9% possibility that the US interest rate would be raised by 25 basis points by end-July. The June non-farm payrolls data due this Friday July 7 is also of concern.
2. Inventory likely to rise on intensive arrivals
It is learned that a large number NORNICKEL nickel will arrive in China soon, though the import window stays closed.
3. New refined capacities come on stream as planned
China's refined nickel production totaled 107,105 t in the first half, up 30.12% YoY, according to 12 sample manufacturers tracked by Mysteel.
Source: Mysteel
In addition, Bofeng Co. resumed the production, and the output could reach 1,000 t per month. The electrowinning nickel production lines of Huayou Cobalt and GEM kept ramping up. CNGR's nickel has entered the market in June. Tsingshan's nickel project in Indonesia is scheduled to yield output soon.
To sum up, nickel prices are likely to maintain momentum in the near term with support of resilient demand and low inventory but could hardly shake off the downward trend in the long run on rising supply.
Written by Aggie Hu, huchenying@mysteel.com
