How Will SHFE Nickel Perform in Second Half of 2022 after Recording a Gain of 26% in the First Half?

SHANGHAI, Jun 23 (SMM) - Affected by extreme moves of LME nickel in March 2022, SHEF nickel surged as well, and then stabilised after LME nickel restored its normal trading. SHFE nickel showed an inverted V-shaped move since the beginning of the year until June 22.

Spot market

SMM #1 refined nickel spot price set an all-time high at 292,700 yuan/mt on March 9 since its recording with SMM, and kept dropping since then, with a combined fall of 27.74% as of June 21, while the YTD increase was 37.74%.

According to SMM research, nickel prices rose as a whole in the first half of 2022 amid constantly falling pure nickel inventory across the globe. Looking back on the first quarter, LME nickel once soared to an abnormal high of $55,000/mt, and pulled up SHFE nickel as well. LME nickel then gradually dropped amid the introduction of stringent regulations, and the trading volume slumped in light of the violent volatility of nickel prices.

In the second quarter, both SHFE and LME nickel prices posted palpable declines amid a series of tightening monetary policies including rising US interest rate, shrinking balance sheet. From the perspective of raw material hedging, manufactures were generally less willing to use LME nickel as a hedging tool though it has been correcting, and the vitality of LME nickel also remained low. In terms of price level, downstream sectors in China, such as nickel sulphate, battery, alloy and electroplating, saw extensive production cuts, and nickel prices are expected to return to normal with lasting negative feedback from the downstream players.

On the supply side, spot pure nickel imports were in constant losses in the first quarter, and turned profitable in the second quarter. Though LME nickel inventory was low, domestic inventory rose slightly as early as in April with domestic nickel sulphate plants resuming the production of refined nickel and amid import profits of pure nickel. In addition, as NPI production lines commissioning one after another, primary nickel supply is likely to pick up, potentially suppressing the demand for pure nickel if NPI prices keep falling.

On the demand side, stainless steel demand recovery was slower than expected in March and April with recurring pandemic in Wuxi and Foshan. Stainless steel inventory rose significantly with the imbalance between supply and demand. The positive news is that the terminal operating rates have rebounded entering the second quarter. In terms of alloy, large-scale purchases could be expected when the prices fall.

To sum up, pure nickel supply was relatively sufficient in the second quarter, and the downstream demand also remained stable. With the expected rising supply of NPI, which will contain the demand for pure nickel, nickel prices are likely to maintain a downward trajectory in the long run, coupled with rising output of high-grade nickel matte.