SHFE nickel price has been resilient recently. The most-traded SHEF nickel 2306 contract once hit Yuan 170,000/tonne against the weak fundamentals. There have been clues to follow.
SHFE nickel warrants have lately refreshed its historically low, and stood at merely 159 t as of May 29, which seriously weighed on the market sentiment. Meanwhile, the historically low LME nickel warrants further stirred the nerves of market players. As of May 26, LME reported only 38,700 t of nickel warrants, 7,560 t of which were nickel plates.
Back in China, the country's refined nickel imports were 23452.56 t in the first four months of 2023, down 44,405 t or 65.44% year on year, according to the General Administration of Customs.
What's more, the ramp-up of new electrowinning nickel capacity has been unable to make up for the falling imports, as is evidenced by the diminishing spot nickel inventory which stood at merely 7,237 t as of May 26 per Mysteel survey of 27 commercial warehouses.
Therefore, the current nickel prices have gained support from low spot inventory and warrants. But it remains skeptical as whether such support is sustainable.
On the supply side, an additional 3,000 t of NORNICKEL nickel is expected to arrive in China every month under long-term contracts, with the total arrival amounting to over 4,000 t. In addition, some market players are preparing to deliver the SHFE contracts. Also, a nickel brand registered in Zhejiang is reported to have applied as a SHFE deliverable product, mitigating the risks of a short squeeze owing to low warrants.
Nickel production is expected to grow substantially as well. A nickel smelter in Zhejiang has been ramping up the production aggressively in May, while other production resumption and expansion projects in Guangxi, Xinjiang and Tianjin are also in full swing. Among them, a project in Qinzhou city is expected to have the first batch of samples as early as in June and July.
On the macro front, the market is generally bearish on the US economy as the ongoing debt ceiling bill is expected to accompany falling government expenditures. In addition, the rising odds on follow-up interest rate hike will weigh on commodity prices as well.
To sum up, the market players are bearish on SHFE nickel price on possible supply surplus in the mid and long run, which is also a chance for the shorts.
Written by Aggie Hu, huchenying@mysteel.com
