SMM Nickel Market Morning Comment Fully (Mar 25)

Nickel prices dropped last week. By last Friday, SHFE nickel contract closed at 134,710 yuan/mt, down by 5.05% WoW. The decline was driven by waning optimism in the market, leading prices to align with fundamentals. Bullish sentiment was fueled by Indonesia RKAB and supply-demand imbalances in the new energy sector. Firstly, nickel prices were greatly impacted by slow RKAB approval, which didn't meet market expectations. This led to a belief in scarce raw material supply, boosting prices across the nickel industry. However, recent research by SMM shows an acceleration in Indonesia RKAB approval, with 107 companies approved, totaling 152.6 million mt capacity. This has shattered the expectation of scarce supply, causing market prices to drop. Secondly, the nickel sulphate spot transactions were weak. There's limited room for further increase in nickel salt prices. Supply side, more nickel is being produced both in China and abroad. In March, China's refined nickel production is expected to rise by 3% MoM. Also, Russian nickel might arrive by the end of the month, increasing expectations of more pure nickel supply. Demand side, spot transactions picked up slightly as nickel prices fell, prompting some restocking in alloy and special steel sectors. Yet, downstream industries express pessimism about future demand, with some reporting a notable drop in orders YoY. In summary, with ample supply and low demand for pure nickel, SHFE nickel 2404 contract is anticipated to show weak performance this week.

Nickel: Last week, nickel prices fluctuated downward, with SHFE nickel futures closing at 134,710 yuan/mt on Friday, down 5.05% from the previous week. The downward trend in nickel prices during the week was unstoppable, mainly due to the exhaustion of bullish sentiment in the market's trading in the previous period, prompting nickel prices to return to the fundamentals of pure nickel. Bullish sentiment mainly revolves around the mismatch between supply and demand in Indonesian nickel ore RKAB and the new energy sector. Firstly, the nickel ore quota incident, as nickel prices had been influenced by the excessively slow approval speed of RKAB compared to market expectations. The logic of trading the scarcity of raw material supply began to drive prices up throughout the nickel industry chain. However, as of this week, according to SMM research, the approval progress of Indonesian nickel ore RKAB has accelerated this week. Currently, 107 nickel mining companies have been approved, with a total capacity of 152.6 million mts. The expectation of tight raw material supply was directly shattered, leading to volatile downward movement in the market. On the other hand, the spot market of nickel sulfate was affected by profit transmission, shifting downwards, and the subsequent rise in nickel sulfate prices was limited. Fundamentally, looking at the supply side, new production capacities at home and abroad are still in the stage of climbing production, with refined nickel production in China expected to increase by 3% month-on-month in March. In addition, according to SMM research, the earliest arrival of this year's first batch of Russian nickel long orders may be at the end of the month, intensifying expectations of loose nickel supply next week. On the demand side, spot transactions rebounded slightly as nickel prices declined during the week, with downstream starting to replenish inventory purchases. By industry, purchases during the week mainly focused on the alloy and special steel sector. However, it is worth noting that downstream holds pessimistic expectations for future terminal demand, with some downstream indicating a significant decline in orders compared to last year. In summary, the current dispersal of bullish sentiment caused by the accelerated approval of RKAB lets nickel prices return to their fundamentals, while the current situation of strong weakness in pure nickel supply cannot be reversed in the short term. Therefore, it is expected that SHFE nickel 2404 will operate with weak volatility next week.

Nickel Sulfate: On March 22, the SMM battery-grade nickel sulfate index price was 30,711 yuan/mt, up 940 yuan/mt from the previous Friday. The price of battery-grade nickel sulfate was 30,500-31,000 yuan/mt, with an average increase of 900 yuan/mt from the previous Friday. This week, nickel sulfate prices continued to rise, with upstream and downstream gradually signing April orders. The main transaction prices revolved around the average, and the center of transactions shifted downward slightly. Looking at the supply side, sales at producing salt factories are fixed, and spot shortages continue without improvement. Currently, wet-process recycling factories are not recovering as expected, mainly because during the period of rising prices of nickel-cobalt salts, the coefficient of waste has also been raised, leading to a profit inversion in wet-process recycling factories, delaying the pace of recovery. Overall, the increase in supply is not as fast as the increase in demand for nickel sulfate downstream. On the demand side, the increase in the proportion of ternary materials and the boost in sales of series 6 vehicles have led to low battery inventories. Demand increments can be transmitted to the precursor end, and the March order situation for precursors is optimistic.Therefore, the market was relatively active throughout March. The increment in demand for precursor materials has been smoothly transmitted to the salt factory. With low inventories at salt factories and sales fixed at the production pace, spot shortages have not been relieved. This week, downstream precursors have started purchasing April orders, with March's precursor inventories almost depleted, but with low safety stock levels. Therefore, coupled with the just-needed demand for April stocking, there is a willingness to compromise on prices. Transaction prices continue to rise. MHP prices remain at 80-81 coefficients, and high-nickel coefficients remain at 84-85 coefficients. Nickel prices are on the stronger side, and the overall raw material cost of nickel sulfate is high. The current upward speed of nickel sulfate prices exceeds that of raw material prices. The profit of nickel sulfate production lines has turned positive, but still hovers around the cost line.

It is expected that in the future, the tight supply and demand situation will temporarily prevent the easing of nickel sulfate prices, but due to the difficulty of downward transmission, the upward space is limited, and it is expected that nickel sulfate prices will stabilize this week.

NPI: Last week, the average price of SMM 8-12% NPI was 947.4 yuan/mtu (including tax), down 7.4 yuan/mtu from the previous week, showing a downward trend in NPI prices during the week. Looking at the supply side, although the approval speed of nickel ore quotas has recently significantly increased, the time required from the mine to the smelter still needs time, thus the NPI production during March is expected to remain low. However, domestic terminal demand continues to be weak, with some traders and iron factories reporting price cuts.

On the demand side, stainless steel terminal demand remained weak throughout the week, thus failing to boost NPI demand. In summary, current stainless steel terminal demand remains weak, leading to an accumulation trend in the supply side, and it is expected that current NPI prices will remain weak.

Stainless Steel: Last week, spot prices for stainless steel continued to decline. On March 22, the SMM 304 cold-rolled margin price was 13,500-13,800 yuan/mt, with the SS contract main force shaking at a low level, maintaining around 13,500-13,700 yuan/mt. In terms of news, this Monday, the futures contract prices for April of South China steel mills were once again released, with prices continuing to decline compared to the previous period, with the base price of 304 cold-rolled reduced to 13,500 yuan/mt. Market transaction sentiment warmed up slightly on Monday compared to the short-term downturn last Friday, with an abrupt increase in agency quote volume in a short period, followed by news of steel mills announcing the closure of bids on Tuesday. Market transaction prices began to weaken from Tuesday onwards. As it has entered the third trading week of March, the high initial prices of the month have resulted in few transactions, with poor completion rates for agency monthly agreements, and pressure has been transmitted to this week. Market agents and traders simultaneously reduced spot prices in sync with the steel mill's price reductions, and trading at a price for volume has become the mainstream trading strategy. In terms of social inventory, the distribution volume of steel mills this week was weaker than last week. Due to weak overall stainless steel demand in March, public warehouses and port inventories have still not been alleviated significantly. Against the background of slow destocking, steel mills continue to implement small-scale distribution policies. Under the dual pressures of capital returning and downstream consumption weakness, it is expected that spot prices for stainless steel will remain relatively weak this week.