High-Grade NPI Prices Weaken Due to Multiple Factors, Market Uncertainty Intensifies [SMM Analysis]

Recently, the nickel market dynamics have shown the intertwined effects of multiple complex factors, driving down high-grade NPI prices. The weekly average price of SMM 8-12% high-grade NPI was 934.3 yuan/mtu (ex-factory, tax included), a slight decrease of 2.1 yuan/mtu compared to the previous week. Meanwhile, the Indonesian NPI FOB index also dropped by $0.7/mtu, indicating that the overall sluggish market trend persists.

Supply side, domestic high-grade NPI production in China was constrained by narrowing profits, with production in east and north China slightly declining. This was partly due to falling market prices, which pressured producers with operational losses. At the same time, Indonesia exhibited a different trend, with new capacity continuously being released and the impact of high-grade nickel matte being converted to high-grade NPI, leading to further production increases. As a major global nickel producer, Indonesia's production changes undoubtedly add more variables to the market supply structure.

Demand side, the stainless steel industry entered a peak period of seasonal maintenance, weakening demand for high-grade NPI. This was particularly evident as large steel mills had relatively sufficient forward raw material reserves, making this week's market transactions especially sluggish. Nevertheless, the stable premium of Indonesian laterite nickel ore provided strong cost support for high-grade NPI, potentially limiting the downside room for prices in the short term.

Notably, the price gap between high-grade NPI and refined nickel continued to widen, with the weekly average discount reaching 309.1 yuan/mtu, an increase of 7 yuan/mtu WoW. This change indicates that under the backdrop of sluggish downstream product prices, such as stainless steel, high-grade NPI remains in a negative feedback cycle, with raw material prices under pressure.

In the broader market environment, macroeconomic factors also played a role. The strong US dollar index and the resilience of the US economy exerted additional pressure, posing challenges for global non-ferrous metals. The destocking of LME inventories began to emerge, while the accumulation of domestic social inventories slowed, leading to a slight rebound in spot prices. However, high-grade NPI prices still face downside risks, especially amid weakening procurement demand from major enterprises and expectations of a supply surplus.

Cost side, auxiliary material prices rose slightly this week, particularly coke prices, which rebounded slightly due to improved supply-demand relationships, raising the auxiliary material cost line for NPI smelters. Additionally, the rainy season in the Philippines restricted nickel ore shipments. Although spot market transactions remained sluggish, nickel ore prices in the Philippines from 25 days ago remained stable.

Overall, high-grade NPI prices are still at risk of pulling back in the short term, and the profitability challenges for smelters may further intensify. While auxiliary material prices may continue to rise, nickel ore prices on the raw material side are likely to remain stable. Next week, the market may continue to see the average discount between high-grade NPI and refined nickel widen. Given the persistent weakness in spot prices, steel mills and smelters need to closely monitor market trends and adjust their production and procurement strategies to address potential challenges.

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