Indonesian Pyrometallurgical Ore Prices Rise, Leaving NPI Companies in a Dilemma [SMM Nickel Morning Meeting Summary]

5.8 Nickel Morning Meeting Summary

Macro News:

Key Highlights from the Press Conference of the "One Bank, One Bureau, One Commission" on May 7 - "Dual Measures" of RRR Cuts and Interest Rate Cuts

(1) Quantitative Policy - Increasing Medium and Long-Term Liquidity Supply: ① Reducing the reserve requirement ratio (RRR) by 0.5 percentage points, bringing the overall average RRR from 6.6% to 6.2%, and it is expected to provide approximately 1 trillion yuan of long-term liquidity to the market. ② Improving the reserve requirement system by temporarily reducing the RRR for auto finance companies and financial leasing companies from the current 5% to 0%.

(2) Pricing Policy - Adjusting Structural Monetary Policy Tools and Housing Provident Fund Loan Interest Rates: ① Lowering the policy interest rate by 0.1 percentage points, with the 7-day reverse repo operation rate in the open market adjusted from 1.5% to 1.4%, which is expected to drive the loan prime rate (LPR) down by approximately 0.1 percentage points in tandem. ② Reducing the interest rates of structural monetary policy tools by 0.25 percentage points, including the interest rates of various special structural tools and re-lending rates for supporting agriculture and small businesses, all lowered from the current 1.75% to 1.5%; the interest rate of pledged supplementary lending (PSL) is reduced from the current 2.25% to 2%. ③ Lowering the interest rate of individual housing provident fund loans by 0.25 percentage points, with the interest rate for first-time homebuyers with a loan term of over five years reduced from 2.85% to 2.6%, and interest rates for other loan terms adjusted accordingly.

Refined Nickel:

Spot Market:

Today, the SMM 1# refined nickel price is 124,300-127,000 yuan/mt, with an average price of 125,650 yuan/mt, up 75 yuan/mt from the previous trading day. The mainstream spot premium quotation range for Jinchuan No.1 nickel is 2,000-2,300 yuan/mt, with an average premium of 2,150 yuan/mt, down 100 yuan/mt from the previous trading day. The premiums and discounts quotation range for Russian nickel is -50-300 yuan/mt, with an average premium of 125 yuan/mt, up 25 yuan/mt from the previous trading day.

Futures Market:

The most-traded SHFE nickel contract (NI2506) mainly fluctuated rangebound in the morning session, closing at 124,690 yuan/mt as of 11:30, up approximately 0.1% from the settlement price of the previous trading day. In terms of inventory, LME nickel inventory was 200,082 mt as of May 6, continuing to destock by 336 mt, with inventory remaining at a high level overall. SMM domestic social inventory was approximately 44,100 mt, destocking by about 560 mt MoM.

Currently, bullish and bearish factors are intertwined in the nickel market, with nickel prices fluctuating rangebound. The upward pressure comes from weak downstream demand, high inventory pressure, and macroeconomic uncertainties, while the downward support relies on the cost line. Meanwhile, refined nickel raw materials are in short supply, which will affect the supply in the short term.

Nickel sulphate:

On May 7, the SMM battery-grade nickel sulphate index price was 27,856 yuan/mt, with a quotation range for battery-grade nickel sulphate of 27,860-28,370 yuan/mt. The average price rose slightly compared to the previous day.

Cost side, in April, the MHP production in Indonesia was significantly impacted by floods, leading to a supply-demand gap and keeping its coefficient at high levels. Overall, MHP costs provided strong support. Supply side, some nickel salt smelters had limited quantities available for external sales in the remaining days of May, resulting in firm quotations. Some nickel salt smelters, due to incomplete raw material stocking, had expectations for production cuts. Additionally, with raw material prices fluctuating at highs, this further supported firm pricing. Demand side, this week is not a traditional procurement phase, and some precursor plants have already stocked up on inventory for over half a month, resulting in low procurement activity. Looking ahead, based on fundamental factors such as tight raw material supply, stable cost support, and downstream demand dependence, it is expected that nickel salt prices will show a mild upward trend in the short term.

NPI:

On May 7, the average price of SMM 8-12% high-grade NPI was 951 yuan/mtu (ex-factory, tax included), down 7 yuan/mtu from the previous working day. Supply side, domestically, some smelters that had undergone maintenance earlier began to resume production. Coupled with a significant increase in port arrivals of nickel ore from the Philippines, smelters' raw material inventories were replenished. However, due to deepening losses, the increase in production was relatively limited. In Indonesia, the current domestic trade premium for nickel ore continued to hold up well, and the decline in finished product prices had already breached the cost lines of some smelters. On this basis, the ramp-up of new capacity may slow down, and there are expectations for a slight decrease in production. Demand side, after the holiday, the stainless steel market performed relatively average. The mainstream steel mills' plate prices remained at pre-holiday levels, with spot transactions mainly occurring at lower prices. Stainless steel mills maintained low prices for forward raw material procurement. It is expected that against the backdrop of a potential decline in stainless steel mills' production schedules, the price of high-grade NPI will remain under pressure in the short term.

Stainless steel:

On May 7, SMM reported that news of Sino-US negotiations emerged, indicating expectations for a relaxation of the tariff war. Stimulated by this favourable macro front, SS futures quickly surged and strengthened after the opening of the daytime session. However, due to the absence of substantive tariff adjustment policies, market confidence was difficult to sustain, and futures prices subsequently fluctuated downward and gradually pulled back. In the spot market, the brief strengthening of futures prices boosted market sentiment. Coupled with the release of restocking demand after the Labour Day holiday, spot quotations saw a slight increase. However, downstream end-users' acceptance of high-priced resources remained insufficient, with market transactions mainly driven by just-in-time procurement. It is worth noting that with the progress of restocking after the holiday, the availability of low-priced goods has decreased, to some extent supporting the firm performance of spot prices.

In the futures market, the most-traded contract 2506 saw a brief price increase before pulling back. At 10:30 a.m., SS2506 was quoted at 12,750 yuan/mt, up 50 yuan/mt from the previous trading day. In the Wuxi region, the spot premiums/discounts for 304/2B stainless steel ranged from 370 to 570 yuan/mt. In the spot market, the cold-rolled 201/2B coils in both Wuxi and Foshan were quoted at 8,050 yuan/mt. The average price for cold-rolled cut edge 304/2B coils was 13,050 yuan/mt in Wuxi and the same in Foshan. The cold-rolled 316L/2B coils were priced at 23,850 yuan/mt in Wuxi and the same in Foshan. The hot-rolled 316L/NO.1 coils were quoted at 23,050 yuan/mt in both regions. The cold-rolled 430/2B coils were priced at 7,500 yuan/mt in both Wuxi and Foshan.

Currently, the supply side of the stainless steel market continues to fluctuate at highs. Faced with losses, producers have reduced the production of heavily loss-making 300-series stainless steel and increased the output of 200-series and 400-series products to optimize their product mix. However, influenced by recent policy changes, market uncertainties have increased significantly. Downstream enterprises have generally adopted a cautious attitude, with procurement behavior becoming more conservative and consumer demand remaining sluggish. This supply-demand imbalance has become the main constraint on the current development of the stainless steel market.

Nickel Ore:

Philippine Nickel Ore: Today, the domestic Philippine laterite nickel ore market showed a mediocre performance, with mainstream transaction prices remaining at the pre-holiday levels. The CIF prices for Philippine NI1.3% laterite nickel ore were $44-$45/wmt, and the FOB prices were $34-$36/wmt. The CIF prices for NI1.4% were $52-$53/wmt, and the FOB prices were $42-$44/wmt. The CIF prices for NI1.5% were $60-$61/wmt, and the FOB prices were $50-$52/wmt. In terms of supply and demand, on the supply side, all nickel ore loading points in the Philippines experienced 25mm-45mm of precipitation this week, affecting mine loading operations. On the demand side, a stainless steel mill in South China conducted another NPI tender yesterday, with downstream NPI tender prices hitting new lows. Amid deepening losses, the sentiment of domestic NPI smelters towards raw material procurement has been dampened. Looking ahead, the domestic transaction prices of Philippine nickel ore may be dragged down by the downstream sector and operate under pressure.

Indonesia's Local Laterite Nickel Ore: This week, SMM's price for Indonesia's local 1.3% laterite nickel ore (delivery-to-factory price) was $25.5-$26.6/wmt, and for 1.6% ore, it was $52.6-$54.6/wmt. Regarding ore used for pyrometallurgy prices, despite a slight drop in the May HPM price, the mainstream premium for ore used for pyrometallurgy on Sulawesi Island was raised to $26-$28/wmt in May, and the absolute price of ore used for pyrometallurgy still increased. For ore used for hydrometallurgy, influenced by the reduced production schedule of MHP in Indonesia in April, downstream smelters attempted to push down the prices of ore used for hydrometallurgy. After the Labour Day holiday, the FOB price for NI1.3% ore used for hydrometallurgy fell to $17/wmt, a decrease of approximately $2/wmt.Looking ahead, the rainy season on Sulawesi Island, Indonesia, has not yet fully ended, while the rainy season on Halmahera Island has already begun. The rainy season continues to affect the supply of nickel ore, with mines showing strong sentiment to stand firm on quotes. After the prices of ore used for pyrometallurgy rose slightly, downstream NPI enterprises are facing a dilemma, while hydrometallurgy enterprises still have profit margins.