Weak spot nickel prices to ease short squeeze for futures

SHANGHAI, Jun 27 (SMM) – Weakness in the Chinese spot nickel markets is likely to ease a short position squeeze for the July contract on the Shanghai Futures Exchange, which has firmed up prices.

The SHFE 1907 nickel contract has maintained a premium over the 1909 contract in recent weeks, which stood at 400 yuan/mt as of CST 10:52 Thursday June 27. This was caused by low inventories of deliverable cargoes, even as overall domestic stocks continued to grow.

The physical market, however, saw much weaker performance. As downstream consumers held back from purchasing, Russian materials were quoted in a wider discount of 500-400 yuan/mt against the SHFE 1907 contract as of Wednesday June 26.

The divergence between the futures and spot markets is likely to prompt spot sellers to put their cargoes on warrants, which will narrow the backwardation structure on SHFE nickel and ease the short squeeze.

Aside from the short squeeze, recent gains in nickel prices were also bolstered by market optimism about US-China trade talks, as US President Donald Trump and his Chinese counterpart Xi Jinping are expected to at least reach an agreement to resume trade negotiations at their meeting in Japan at this weekend.