The most-traded SHFE 2308 nickel contract closed July 26 with a daily gain of 1.15% at Yuan 172,990/tonne and hit the intraday high at Yuan 174,000/t, close to the near-term high. As of July 26, the contract has achieved a combined growth of 9.83% since entering the second half of 2023 for the combined effects of bullish macro front, low inventory, and upcoming peak season.
Commodity prices rise across the board for bulls on the macro front
In China, the Political Bureau of the Central Committee of the Communist Party of China held a meeting on July 24 to study the current economic situation and work out detailed plans and orientation for the second half. Among them, real estate, private economy, and consumption were highlighted, which has given the market strong confidence regarding consumption in the second half.
Overseas, the US Federal Reserve's fifth rate meeting is worth attention, with market players generally expecting a 25-basis-point rate hike, followed by a temporary stop in the next two meetings.
Bulls in China and overseas together boosted the market sentiment, which greatly pushed up the prices of commodities, including nickel.
Market demand is driven by upcoming traditional peak season
Across the downstream sectors of nickel, the stainless steel segment is about to kick off the traditional peak season ranging August-October. A solid evidence is that domestic stainless steel mills have kept the production at a high level at 3.03 million t of crude steel in June and 3.02 million t in July based on available plans, according to 41 mills surveyed by Mysteel. There is saying that the August production scheduling will be even higher. Active production has created abundant demand for nickel.
Source: Mysteel
The alloy sector, a major application field of refined nickel, also posted improving consumption, which stood at 15,700 t in June and 104,200 t in the first half, up 25.06% and 26.79% YoY respectively.
However, the apparent consumption of refined nickel in the first half of 2023 was less than last year mainly due to the new energy sector significantly reducing the use of nickel briquette. Nevertheless, the consumption in the second quarter already rebounded 27.72% compared with the first.
Stubbornly low inventory offers strong support
Low nickel inventory has long been the "strongest backing" for nickel prices. As of July 21, China's refined nickel inventory totaled 9,524 t, including 1,608 t warrants inventory (which dropped further to 1,597 t as of July 26), 3,210 t spot nickel plate, 6 t spot nickel briquette, as well as 1,900 t nickel plate and 2,800 nickel briquette in the bonded zone, according Mysteel survey of 27 warehouses.
LME nickel inventory was also at its historical low, which recorded 37,590 t as of July 26, comprising 8,136 t nickel plate and 26,598 nickel briquette. The last time when LME nickel inventory remained below 50,000 t for long was in 2008.
Source: Mysteel
Market rumors also play a role
There has been rumor that the government will purchase refined nickel, and even NPI, nickel sulfate, nickel matte as national reserves. Though the rumor is more likely a rumor as nickel prices have been relatively high, a bad timing for government stockpiling, it materially boosted the market sentiment. In addition, no market players have received clear notices concerning this matter, learned by Mysteel.
Nickel prices are likely to mainstream momentum in the future
Nickel prices are likely to maintain momentum looking at the firm fundamentals of upcoming peaking season and low inventory, as well as bulls on the macro front. However, there are still variables.
First, if the US Fed does not act as the market has anticipated at the July rate meeting, nickel prices may fluctuate drastically. And as nickel supply is on track to rise, the inventory is likely to accumulate in the future, especially after Huayou Nickel has successfully registered as a SHFE and LME deliverable brand, which is expected to encourage more brands to imitate the practice.
That is, there is possibility that nickel prices will fall from high.
Written by Aggie Hu, huchenying@mysteel.com
