Using Data to Analyze Possibility of Squeezing of SHFE Nickel Contract 1801

SHANGHAI, Oct. 23 (SMM)－Recently, many nickel customers have discussed the possibility of squeezing of SHFE Nickel Contract 1801 with SMM. Concerning this, through abundant real-field research and interview, SMM draws out the conclusion that SHFE Nickel Contract 1801 is likely to keep rising tendency by January 2018 due to estimation of squeezing. Contract 1801 will probably impact upward the 100,000 yuan per tonne by January, 2018, but it will likely to plump at delivery due to failure to realize squeezing eventually.

Firstly, How many nickel sheets are there in SHFE for delivery?

Current number of nickel sheets that can flow into Chinese market + China’s total inventories of nickel sheets

Source：SMM

As per above table, according to data from SMM on Oct.20^th, the total domestic nickel sheets inventories is 98,478 tonnes (Warehouse warrant of SHFE+ CMSTD Shanghai, Nanda Rd.+ Shanghai Bonded Area). Total inventories of LME Nickel is 387,900 tonnes. Thereinto 120,000 tonnes are nickel sheets, rest are nickel briquettes and pellets which have not been registered as delivered commodities in SHFE.

SMM learned that 60,000 tonnes among 120,000 tonnes nickel sheets inventories in LME warehouse are Norilsk nickel, which have been registered as delivered commodities in SHFE. Others including Sumitomo and Inco nickel have not been registered as delivered commodities in SHFE. Above all, the total inventory of nickel sheets that can be delivered in SHFE including China’s nickel sheets inventories and Norilsk Ni in LME warehouse is 158,478 tonnes.

SMM Estimated total actual amount of nickel inventory can be registered as warehouse warrant in SHFE

Source：SMM

What need to be mention is, one of the mandatory conditions of imported Norilsk Ni to China to be registered as warehouse warrant in SHFE is to provide proofs like customs manifest and tax certificate. But concerning those 28,000 tonnes nickel sheets stock at CMSTD Shanghai, Nanda Rd., it’s hard to trace back to the first-hand importer as some goods have experienced circulation so many times, saying those goods are lacking in tax certificate. SMM conservatively estimates according to research on traders, if the part that lacks tax certificate accounts for 10%, the actual amount that can be registered as warehouse warrant in SHFE is 25,200 tonnes (28,000x90%). Besides, SMM supposes the Norilsk Ni consumption by European countries and America in LME warehouse accounts for 10% (conservatively low percentage), saying the amount that flows into Chinese market is 60,000x90%=54,000 tonnes.

In summary, SMM estimates the actual amount of Nickel sheets that can be delivered at SHFE is 149,678 tonnes.

While the position held volume of SHFE Contract 1801 on Oct.20^th is 482,000 hands, saying demand of unilateral delivery volume is 241,000 tonnes. Obviously, the condition of squeezing exists. 

Secondly, Will SHFE increase other delivered brand to make up insufficiency of delivery volume?

Currently delivered brands in SHFE are domestic brands like Jinchuan, Ji’en and foreign brand as Norilsk. The main physical form of delivery is nickel sheets since nickel spheres and beans which have not been registered as delivered commodities in SHFE.

So will SHFE increase other delivered brand to make up insufficiency of delivery volume? SMM thinks it is unlikely before delivery of Nickel Contract 1801 on January 2018. This is because if nickel beans becomes a register brand, the foundation of domestic nickels squeezing will not exist anymore, saying the support of growth of nickel price will be broken, which is no good for nickel briquettes producer. SMM learned SHFE has sent invitation to one large-scale foreign producer but it has not accepted yet.

In summary, SMM thinks it’s hard for SHFE to increase other delivered brand to make up insufficiency of delivery volume. With the foundation of squeezing, Contract 1801 will probably rush upward to 100,000 yuan per tonne by January 2018, but considering SHFE previous handling style, it is estimated to negotiate with major institutional investors of both bears and bulls half month before delivery of Nickel Contract 1801, asking them to do mandatory liquidation to avoid happening of squeezing at delivery.

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