[SMM Nickel Midday Review] Nickel prices consolidate on a subdued note on Oct 12, pressured by a four-week dollar rally

SMM nickel, October 12:

Macro and market news:

(1) Fed officials maintained a hawkish but flexible pace. Waller reiterated that further rate hikes are still needed, but they do not need to occur at consecutive meetings and the timing can be flexible; the 10-year Treasury yield shot up then pulled back to close at 5.246%, ending a five-week streak of gains for the week; the US dollar index rose for a fourth straight week to close at 102.12, its longest weekly winning streak in 21 months. The market priced in only a 19% chance of an October hike, but the probability of a cumulative 25 bp hike by end-December reached 84%.

(2) Oil prices were mixed, with Brent up 2.42% for the week. Hurricane Isaias approached the Gulf of Mexico, shutting in more than 70% of US crude oil capacity in US waters; Iran said the US had accepted some of its conditions for reopening the Strait of Hormuz but the response was insufficient, and the Revolutionary Guard warned that vessels with navigation identification systems turned off would be treated as hostile targets, while Houthi forces attacked a Saudi airport, killing 12 and injuring 309; on the other hand, Trump announced a Russia-Ukraine "energy ceasefire" and the US eased sanctions on Russia, allowing imports of Russian diesel until next April. Brent closed at $104.72/bbl and WTI at $91.85.

(3) China: the official manufacturing PMI for September came in at 50.1, returning to expansion territory; the Ministry of Finance arranged to use 550 billion yuan of local government debt carryover quota; China and the EU reached an understanding on hybrid vehicle trade; the offshore yuan broke 6.70 again intraday, approaching a four-year high; the CSRC held an expert symposium on capital market and financial conditions.

Spot market:

On October 12, the average price of SMM #1 refined nickel was 120,450 yuan/mt, down 1,200 yuan/mt from the previous trading day. In terms of spot premiums, the average for Jinchuan #1 refined nickel was 4,150 yuan/mt, flat from the previous trading day, and mainstream domestic brands of electrodeposited nickel ranged from -200 to 600 yuan/mt.

Futures market:

The most-traded SHFE nickel contract (2611) opened higher in early trading, then retreated after a rapid rise, and closed the morning session at 118,710 yuan/mt, down 0.33%.

Short-term outlook:

The US dollar has risen for four straight weeks and the 84% probability of a December hike continues to weigh, while SHFE nickel fell on rising open interest, still dominated by its own weak fundamentals. In the short term, the most-traded SHFE nickel contract is expected to trade in a range of 118,000-122,000 yuan/mt.