SHFE nickel warrants recorded 3,262 tonnes as of September 14 approaching the delivery of SHFE 2309, a new high since May 2022, according to the official website. In addition, the pure nickel inventory held by the traders also jumped 40.87% compared with end-June as of September 8, per Mysteel survey.
Source: Mysteel
Near-term SHFE contract prices have been falling significantly entering September, which should have driven down the inventory as the market turns pessimistic on spots. Then what caused such anomaly?
1. Pure nickel is increasingly oversupplied with commissioning of new capacities
China's electrowinning nickel projects came on stream constantly since 2023, lifting the total supply. According to Mysteel survey of 12 sample smelters, the refined nickel production rose 4.78% month on month and 44.28% year on year at 22,700 tonnes in August, and climbed 32.34% from 2022 at 151,400 t over January-August.
And the production is expected to total 252,200 t through 2023 with active ramp-up of new capacities, resumption of Jinchuan Nickel from maintenance, as well as commissioning of new projects in Q4.
Source: Mysteel
In this circumstance, excessive supply will naturally become inventory held by the traders or stored as warrants. The smelters' in-plant nickel inventory is estimated at 1,000 t, learned by Mysteel.
2. More brands are registered with SHFE
The lack of deliverable sources is among the causes for high nickel prices as only Jinchuan and NORNICKEL are qualified brands to deliver SHFE contracts as of this June. Then on June 27, Huayou successfully registered as a SHFE deliverable brand, with other brands like GEM and CNGR mulling over the application.
3. Warrant is asylum amidst intensifying competition in the spot market
Lowering price has been a popular tactic in the spot market to grab market share on the backdrop of rising supply and considerable profits of smelters. Taking nickel plate as an example, the prices of all nickel brands, even NORNICKEL, are sold with discounts, except for Jinchuan nickel which is comparatively irreplaceable.
When domestic nickel plate becomes a perfect alternative to imported nickel as the raw material for alloy and special steel, deliverable imported nickel plate is more recognized for its financial attribute, hence registering as warrants is preferred over competing with domestic brands in the spot market.
Market outlook
Mysteel still holds the view that nickel prices will fall in the mid-to-long-term on gradual oversupply. However, nickel futures prices will be subject to market sentiment and capital moves.
As such, events on the macro front that require close attention in the near term include US Federal Reserves' rate meeting on September 19-20, China Central Bank's lowering reserve ratio of financial institutions on September 15, as well as Indonesia's on-going anti-corruption investigation relating to the mining sector.
Regarding the inventory, it was still at its historical low despite a 40% increase over June 30. Nevertheless, it served as a signal for oversupply. Meanwhile, with more brands successfully registered with SHFE, the warrants are expected to experience a more palpable increase next year.
Written by Aggie Hu, huchenying@mysteel.com