[SMM Nickel Midday Review] Nickel prices plunged on September 11, as US PPI beat expectations, dragging base metals broadly lower

SMM nickel, September 11:

Macro and market news:

(1) US August PPI beat expectations, with the probability of a September rate hike exceeding 70%. August PPI rose 5.4% YoY (expected 5.3%, prior 4.7%), and core PPI rose 4.6% YoY. After the data release, the market priced in a more than 70% chance of a US Fed rate hike in September and fully priced in the first hike of this cycle by October at the latest. The 10-year US Treasury yield surged 12 bp to 4.967% (a near three-year high), and the US dollar index climbed back above the 99 mark to 99.08. Tonight's August CPI is the final verdict before next week's policy meeting.

(2) The European Central Bank raised rates for the second time this year. All three key rates were raised by 25 bp (the deposit facility rate to 2.50%). Lagarde said the Middle East conflict is making inflation more persistent, expects inflation to remain above target for a long time, and also raised inflation expectations for the next two years. The market is pricing in three more ECB rate hikes by mid-next year, with the earliest move possibly in October.

(3) Oil prices surged about 8%, with both WTI and Brent breaking above $100. Yemen's Houthi forces seized the Red Sea port city of Mokha and entered the Hanish Islands, approaching the Bab el-Mandeb Strait, while shipping through Hormuz and the Red Sea remained disrupted. Saudi Arabia reported August crude oil production plunged by 1.9 million barrels per day to the lowest since 1990. WTI settled up 6.73% at $100.59/bbl, and Brent rose 6.71% to $106.3/bbl, both hitting new highs since late May. US diesel broke above $6/gallon.

Spot market:
On September 11, SMM #1 refined nickel averaged 127,600 yuan/mt, down 1,700 yuan/mt from the previous trading day. In terms of spot premiums, Jinchuan #1 refined nickel averaged 2,400 yuan/mt, up 100 yuan/mt from the previous trading day, while mainstream domestic brands of electrodeposited nickel were in the range of -100 to 500 yuan/mt.

Futures market:
The most-traded SHFE nickel contract (2610) opened lower and moved lower in early trading, closing the morning session at 126,000 yuan/mt, down 1.88%.

Short-term outlook:
After US PPI beat expectations, Fedwatch pricing for a September rate hike exceeded 70%. Under pressure from the simultaneous rise in the US dollar and US Treasury yields, LME metals tumbled across the board overnight. Bearish sentiment is expected to remain strong before tonight's US August CPI release. In the short term, the most-traded SHFE nickel contract is expected to trade in the range of 126,000-129,000 yuan/mt.