Nickel prices moved sideways in the first four trading days this week. On Friday, US August PPI came in above expectations, the probability of a September rate hike exceeded 70%, the US dollar and US Treasury yields both rose, and overnight LME base metals plunged across the board. Nickel prices fell sharply, with SHFE nickel hitting a low of 125,000 yuan/mt, down 1.8% on the day and about 1.5% WoW. In the spot market, the average price of SMM #1 refined nickel this week was 128,220 yuan/mt, down 240 yuan/mt WoW. Jinchuan refined nickel premiums widened sharply during the week, climbing from 1,650 yuan/mt to 2,400 yuan/mt, hitting a recent high. Mainstream electrodeposited nickel premiums were quoted at -200-500 yuan/mt from Monday to Wednesday, narrowing slightly to -100-500 yuan/mt from Thursday onward. Spot market trading was relatively active this week. After the sharp price drop on Friday, downstream buying interest was strong, and some end-users have already begun stockpiling ahead of the National Day holiday.
On the macro front, market focus this week was entirely on US inflation readings and the Fed's September 15-16 FOMC meeting. The sharp rise in rate hike expectations late in the week was the core driver of the sell-off. In the first half of the week, escalating tensions in the Middle East pushed oil prices higher, creating a tug-of-war between inflation trades and rate hike expectations, with market sentiment cautious. On Thursday, the US Treasury deployed its "rescue card," buying back up to $6 billion of 10-20 year Treasuries, but the size fell short of the market's expected $7-8 billion, and Treasury yields rose instead of falling. US August PPI released Thursday evening came in above expectations, dealing the decisive blow to the market. The probability of a September rate hike exceeded 70%, the US dollar and Treasury yields both rose, and overnight LME base metals plunged across the board. In China, August inflation data recovered: CPI rose 0.8% YoY (with the increase widening by 0.3 percentage points), core CPI rebounded to 1%, and PPI growth widened to 3.8% YoY, extending the recovery trend in the industrial economy.
On the inventory front, Shanghai Bonded Zone inventory this week stood at about 1,900 mt, up 500 mt WoW. China's social inventory was about 128,000 mt, down about 1,300 mt WoW.
Nickel prices are currently caught between macro pressure from sharply rising US rate hike expectations and a stronger US dollar on one side, and support from continuous destocking in China's social inventory and electrodeposited nickel cost support on the other. Friday's futures market already broke below the 127,000 yuan/mt support level. Tonight's CPI data and next week's Fed meeting (September 15-16) will again create volatility for nickel prices. The most-traded SHFE nickel 2610 contract is expected to trade in the 124,000-129,000 yuan/mt range next week.
