Social inventory of stainless steel fluctuates at highs, and nickel salt prices are expected to rise [SMM Nickel Morning Meeting Summary]

5.27 Morning Meeting Summary

Macro News:

(1) Last Friday, US President Trump publicly denounced the EU for unfair trade practices and threatened to impose a 50% tariff on it next month. However, just two days later, Trump changed his stance. On Sunday local time, Trump stated that he agreed to extend the deadline for imposing a 50% tariff on the EU to July 9.

(2) US Fed's Goolsbee: A 50% tariff on the EU is an order of magnitude away from the current situation, and such a high tariff level would severely impact the supply chain. In the short term, the US Fed needs to wait for the situation to become clearer, and the threshold for action is high before that. There is still a possibility of an interest rate cut in the next 10-16 months.

Refined Nickel:

Spot Market:

Today, the SMM 1# refined nickel price is 122,950-125,350 yuan/mt, with an average price of 124,150 yuan/mt, down 25 yuan/mt from the previous trading day. The mainstream spot premium quotation range for Jinchuan #1 refined nickel is 2,100-2,300 yuan/mt, with an average premium of 2,200 yuan/mt, up 50 yuan/mt from the previous trading day. The premiums and discounts quotation range for Russian refined nickel is 100-400 yuan/mt, with an average premium of 250 yuan/mt, unchanged from the previous trading day.

Futures Market:

The most-traded SHFE nickel contract (NI2506) continues to exhibit a sideways movement, closing at 122,960 yuan/mt as of 11:30, up 0.07%. In terms of inventory, as of May 23, LME nickel inventory decreased by 2,274 mt to 198,636 mt on a single-day basis, and SMM refined nickel social inventory across six locations decreased by 1,762 mt WoW to 42,389 mt, both showing destocking.

In the short term, nickel prices are subject to a dual tug-of-war between cost support and supply-demand surplus, and are expected to fluctuate rangebound in the 121,000-127,000 yuan/mt range, in the doldrums. On the macro side, attention should still be paid to the impact of uncertainties in Trump's tariff policy on the market. The marginal effect of the China-US tariff reduction agreement has weakened, and the US threat to impose a 50% tariff on the EU will trigger market risk-averse sentiment.

Nickel Sulphate:

On May 26, the SMM battery-grade nickel sulphate index price was 27,811 yuan/mt, and the quotation range for battery-grade nickel sulphate was 27,760-28,270 yuan/mt, with an average price holding steady WoW.

Cost side, LME nickel has returned to fundamentals, showing a weakening trend, leading to a slight decline in the production costs of nickel salt smelters. Demand side, the overall demand for nickel salts in June is expected to strengthen MoM. Recently, precursor plants have shown significantly increased activity in inquiring about nickel salt prices, with purchase willingness increasing. Supply side, some nickel salt smelters have maintained stable quotations, while others have raised their quotation coefficients due to increased demand and limited raw material inventory. Looking ahead, next week marks a traditional procurement period. Considering factors such as the improving market demand in June and the cost support from nickel salts, it is expected that nickel salt prices will rise next week.

Nickel Pig Iron (NPI):

As of May 26, the average price of SMM 8-12% high-grade NPI stood at 951 yuan per mtu (ex-factory, tax included), unchanged from the previous working day. Supply side, domestically, nickel ore prices in the Philippines remain firm, imposing a significant cost burden on smelters, with domestic production continuing to operate at low levels. In Indonesia, the latest round of HPM adjustments for domestic nickel ore trade saw only a slight decline. Coupled with the generally stable with slight rise in premiums for ongoing order negotiations, the low finished product prices have led to a loss-making situation for smelters, and production is expected to decrease slightly. Demand side, the mainstream stainless steel mills' futures prices remained unchanged WoW from the previous week, with the market dominated by low-price transactions. Downstream demand has been impacted by tariff adjustments and the current seasonal off-season in the stainless steel market, resulting in weak purchase willingness for high-grade NPI among steel mills. However, supported by cost factors and the fact that market liquidity has not significantly improved, the price center has slightly increased. Overall, it is expected that high-grade NPI prices will remain stable in the short term.

Stainless Steel:

As of May 26, the SS futures market showed a tendency to hold up well, though it remained within a historically low range. On the news front, US President Trump announced a 50% tariff increase on EU imports starting June 1, and issued a warning to mobile phone manufacturers such as Apple and Samsung to produce in the US or face a 25% tariff increase. Although this tariff policy has not directly affected China yet, it has increased uncertainty in external market demand. In the spot market, the previous sluggish trading pattern persisted. However, as high-grade NPI prices stopped falling and began to rebound, expectations for further declines in stainless steel prices have weakened. The intensified competition between bullish and bearish forces has led to a temporary stabilization of spot prices.

The most-traded 2507 futures contract fluctuated upward slightly. As of 10:30 a.m., it was reported at 12,860 yuan per mt, down 35 yuan per mt from the previous trading day. In Wuxi, the spot premiums/discounts for 304/2B stainless steel remained at 360-560 yuan per mt. The quoted prices for cold-rolled 201/2B coils in Wuxi and Foshan were both 8,000 yuan per mt, with the average price for cold-rolled uncut edge 304/2B coils at 13,175 yuan per mt, cold-rolled 316L/2B coils at 24,050 yuan per mt, hot-rolled 316L/NO.1 coils at 23,550 yuan per mt, and cold-rolled 430/2B coils at 7,500 yuan per mt.

Currently, the stainless steel market has entered the traditional consumption off-season, with significantly weak downstream demand. However, supply remains at a high level, placing immense pressure on stainless steel mills to sell their products. There is a notable backlog of inventory among agent traders, and social inventory continues to fluctuate at highs. Due to insufficient orders from downstream end-users, some futures-to-spot traders resorted to dumping spot cargo at low prices after completing arbitrage in the futures market. Consequently, some cargoes only circulated within the trading sector and failed to reach end-users. Despite the rebound in high-grade NPI prices, stainless steel prices being at historical lows, and losses incurred by enterprises providing some support, the stainless steel prices will still face downward pressure in the short term if shipment pressure persists, amidst shrinking demand during the off-season and a persistent high-supply scenario.

Nickel Ore:

Philippine nickel ore has limited downside room in the short term due to the impact of precipitation and multiple factors from the Indonesian side.

Last week, Philippine nickel ore prices remained stable. The CIF price of Philippine laterite nickel ore NI1.3% from the Philippines to China was $43.5-45/wmt, and the FOB price was $32-35/wmt, unchanged from the previous week. The CIF price of NI1.5% was $58-59/wmt, and the FOB price was $47-50/wmt, also unchanged from the previous week. In terms of supply and demand, on the supply side, although there was precipitation at major nickel ore loading points in the Philippines, the continuous rainfall during the week significantly impacted the loading progress of nickel mines, leading to widespread delays compared to expectations. On the demand side, although downstream NPI prices have stabilized, domestic NPI smelters are still suffering severe losses, dampening the sentiment for raw material procurement. The support for nickel ore prices from the demand side continues to weaken. On the cost side, some Philippine nickel mines with NI:1.3% grade finalized transaction prices during the week. Due to active procurement by traders, the final CIF prices did not decline. As a result, the immediate profits of downstream NPI plants are difficult to recover, and raw material procurement has reached an impasse. It is not ruled out that subsequent production cuts may be considered by the plants. In terms of shipments from the Philippines to Indonesia, as of mid-May, the volume of nickel ore shipped from the Philippines to Indonesia exceeded 3 million wmt, up more than 200% MoM from the same period last year. The increase in Indonesia's imports of Philippine nickel ore has further strengthened the sentiment of Philippine mines to refuse to budge on prices. Looking ahead, the current tug-of-war between upstream and downstream players over prices, coupled with the price disruptions from the Indonesian side, suggests that there may be limited room for significant downward adjustments in Philippine nickel ore prices in the short term.

Indonesian ore prices remained stable this week, with the market awaiting the next round of quoted price transactions.

Last week, the transaction prices of Indonesian ore remained stable. For saprolite ore, the mainstream premium for Indonesia's local ore in May remained at $26-28/wmt, unchanged from the previous week. The SMM delivery-to-factory price of Indonesia's local ore 1.6% was $53.3-57.3/wmt. For limonite ore, the delivery-to-factory price of MM Indonesia's local ore 1.3% was $23-25/wmt.

Saprolite ore: On the supply side, weather-related disruptions to nickel ore supply persist. Frequent rainfall from midday to nighttime continues in Sulawesi, and Halmahera also entered the rainy season in May. The frequent rainfall has affected the shippable volume of mines. On the demand side, NPI prices have stabilized at low levels, with strong wait-and-see sentiment. Based on current ore prices, both domestic and Indonesian NPI smelters are experiencing losses, limiting their acceptance of high-priced nickel ore. Inventory side: After experiencing low inventory levels and ore stockpiling in April, the current inventory levels of Indonesian pyrometallurgy smelters have slightly improved, and their willingness to compete for ore at prices above the market rate has decreased. Additionally, the approval process for the subsequent supplementary quotas under the RKAB is expected to commence in June. However, the market remains concerned about the speed of approval for these supplementary quotas. Overall, despite ongoing supply-side disruptions due to weather conditions and the possibility that the RKAB approval progress may fall short of expectations, the current Indonesian domestic pyrometallurgy ore prices have limited room for short-term price increases due to the drag of weak downstream prices.

Limonite ore side: Due to the impact of a tailings dam collapse incident at some projects in the MOROWALI Industrial Park, the MHP production in April decreased, and downstream smelters pushed down the prices of limonite ore. As of May, most of the relevant projects in MOROWALI have resumed production, and market demand for limonite ore has rebounded. Looking ahead, there are expectations for new HPAL projects to commence production in the second half of the year, and the subsequent supply and demand dynamics for limonite ore may begin to tighten. SMM forecasts that limonite ore prices may hold up well in the future.