LME nickel prices return to fundamentals, stainless steel prices to remain under pressure in the short term [SMM Nickel Morning Meeting Summary]

5.28 Morning Meeting Summary

Macro News:

(1) Yu Weining, Statistician from the Industrial Department of the National Bureau of Statistics (NBS): The profit growth of industrial enterprises has accelerated. From January to April, the profits of industrial enterprises above designated size increased by 1.4%, accelerating by 0.6 percentage points compared to the January-March period, continuing the trend of recovery and improvement. By industry, among the 41 major industrial sectors, 23 sectors saw year-on-year profit growth, accounting for nearly 60% of the total. In April, the profits of industrial enterprises above designated size nationwide increased by 3.0% YoY, accelerating by 0.4 percentage points compared to March.

(2) On May 26, Moody's Investors Service released a report, deciding to maintain China's sovereign credit rating at "A1" and its negative outlook unchanged. Relevant officials from the Ministry of Finance stated that since Q4 last year, the Chinese government has implemented a package of macroeconomic regulatory policies, leading to a rebound in economic indicators, stable market expectations and confidence, and enhanced medium and long-term debt sustainability. Moody's decision to maintain the stability of China's sovereign credit rating is a positive reflection of China's promising economic prospects.

Refined Nickel:

Spot Market:

Today, the SMM #1 refined nickel price is 122,150-124,450 yuan/mt, with an average price of 123,300 yuan/mt, down 850 yuan/mt from the previous trading day. The quotation range for spot premiums of Jinchuan #1 refined nickel is 2,100-2,300 yuan/mt, with an average premium of 2,200 yuan/mt, unchanged 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 (NI2507) fluctuated downward, with early morning prices continuously declining, hitting a low of 122,150 yuan/mt, before rebounding slightly. As of 11:30, the closing price was 122,550 yuan/mt, down 0.38%. In terms of inventory, as of May 23, LME nickel inventory decreased by 2,274 mt to 198,636 mt on a daily basis, while 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 remain in the doldrums within the range of 121,000-127,000 yuan/mt. On the macro side, attention should still be paid to the impact of uncertainties surrounding Trump's tariff policies 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 aversion sentiment.

Nickel Sulphate:

On May 27, the SMM battery-grade nickel sulphate index price was 27,812 yuan/mt, with the quotation range for battery-grade nickel sulphate at 27,760-28,270 yuan/mt, and the average price remaining stable WoW.

Cost side, LME nickel has returned to fundamental factors and is in the doldrums, leading to a slight decline in the production costs of nickel salt smelters. On the demand side, nickel salt demand in June is expected to strengthen MoM. Recently, precursor plants have shown significantly increased activity in inquiring about nickel salt prices, with purchase willingness on the rise. Supply side, some nickel salt smelters have maintained stable quotes, while others have raised their quote coefficients due to increased demand and limited raw material inventory. Looking ahead, next week is a traditional procurement period. Considering factors such as the market demand recovery in June and the cost support for nickel salt, it is expected that nickel salt prices will rise next week.

Nickel Pig Iron (NPI):

As of May 27, the average price of SMM 8-12% high-grade NPI was 953.5 yuan/mtu (ex-factory, tax included), up 2.5 yuan/mtu from the previous working day. Supply side, domestically, nickel ore prices in the Philippines remain relatively firm, imposing a significant cost burden on smelters, with domestic production continuing to operate at a low level. In Indonesia, the latest round of HPM for domestic trade nickel ore has seen a slight decline. Coupled with the generally stable with slight rise in the current order negotiation premiums, the low finished product prices have led to a loss-making situation for smelters, and production is expected to decrease slightly. On the demand side, the futures prices of mainstream stainless steel mills remained flat WoW. The market is dominated by low-price transactions. Downstream demand has been impacted by tariff changes and the current off-season in the stainless steel market, resulting in weak purchase willingness for high-grade NPI by steel mills. However, supported by underlying costs 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 27, the SS futures market is fluctuating rangebound. Despite significant declines in the futures prices of ferrous metals series products such as rebar and HRC in recent times, the stainless steel futures market has not been significantly impacted, maintaining a relatively stable state overall. In the spot market, transactions remain sluggish today, with low-price transactions dominating. Currently, the stainless steel market has entered the off-season, but the decline in stainless steel production this month has not been significant, making it difficult to balance production with end-use consumption demand. Moreover, social inventory remains high, placing significant sales pressure on traders. To recoup funds, they have adopted a strategy of offering discounts to facilitate sales, leading to a weakening trend in stainless steel spot prices.

In the futures market, the most-traded contract 2507 is fluctuating. At 10:30 a.m., SS2507 was quoted at 12,835 yuan/mt, down 25 yuan/mt from the previous trading day. The spot premiums/discounts for 304/2B in Wuxi ranged between 385-585 yuan/mt. In the spot market, the prices of cold-rolled 201/2B coils in Wuxi and Foshan were both quoted at 7,975 yuan/mt. The average price of cold-rolled 304/2B coils with uncut edges was 13,150 yuan/mt in both Wuxi and Foshan. The price of cold-rolled 316L/2B coils in Wuxi was 24,050 yuan/mt, the same as in Foshan. The price of hot-rolled 316L/NO.1 coils was quoted at 23,350 yuan/mt in both regions. The price of cold-rolled 430/2B coils in Wuxi and Foshan was 7,500 yuan/mt.

Currently, the stainless steel market has entered the traditional consumption off-season, with significantly weak downstream demand. However, supply remains at high production levels, placing immense pressure on steel mills to offload inventory. Agents and traders face obvious inventory accumulation, while social inventory continues to fluctuate at highs. Due to insufficient end-user orders, some futures-spot traders have sold spot cargo at low prices after completing arbitrage in the futures market, with some goods circulating only within the trade chain without reaching end-users. Although the rebound in high-grade NPI prices, historically low stainless steel prices, and corporate losses provide some support, the backdrop of shrinking off-season demand and unchanged high-supply conditions means that if offloading pressure persists, stainless steel prices will continue to face downward pressure in the short term.

Nickel ore:

Philippine nickel ore faces limited downside room in the short term due to rainfall and multiple factors from Indonesia

Last week, Philippine nickel ore prices held steady. The CIF price for Philippine laterite nickel ore (Ni 1.3%) to China was $43.5-45/wmt, while the FOB price (Ni 1.3%) was $32-35/wmt, unchanged WoW. The CIF price for Ni 1.5% was $58-59/wmt, and the FOB price (Ni 1.5%) was $47-50/wmt, also flat WoW. Supply and demand-wise, supply side, although major nickel ore loading points in the Philippines experienced rainfall, continuous wet weather significantly impacted loading progress at mines, with delays widespread. Demand side, while downstream NPI prices stabilized after declines, domestic NPI smelters still face severe losses, dampening raw material procurement sentiment, and demand-side support for ore prices continues to weaken. Cost side, transaction prices for Philippine nickel ore (Ni 1.3%) were finalized during the week, with CIF prices not declining due to active trader purchases. As a result, downstream NPI plants struggle to restore immediate profits, leading to a procurement deadlock, and potential production cuts cannot be ruled out. For shipments from the Philippines to Indonesia, as of mid-May, over 3 million wmt of nickel ore had been shipped, up over 200% YoY. The increase in Indonesian imports of Philippine ore has further strengthened mine owners' resolve to refuse to budge on prices. Looking ahead, there is a clear pricing tug-of-war between upstream and downstream players, coupled with pricing disruptions from the Indonesian side. In the short term, there may be limited room for a significant decline in nickel ore prices in the Philippines.

Indonesian ore prices held steady this week, with the market awaiting the next round of quoted transaction prices.

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

For saprolite ore: On the supply side, weather-related disruptions to nickel ore supply persist. Frequent rainfall from midday to night in Sulawesi continues, and Halmahera Island also entered the rainy season in May. Frequent rainfall has affected the shipments available from mines. On the demand side, NPI prices have stopped falling at low levels, and there is a 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. In terms of inventory: After experiencing low inventory levels and ore-buying stockpiling in April, the inventory levels of Indonesian pyrometallurgy enterprises have slightly improved, and their willingness to compete for ore at prices above the market level has decreased. Additionally, the subsequent supplementary quota for RKAB is expected to enter the approval process in June, but the market remains concerned about the approval speed of the subsequent supplementary quota for RKAB. Overall, despite supply-side disruptions such as weather conditions and the potential for slower-than-expected RKAB approval progress, dragged down by weak downstream prices, there is limited room for a price increase in Indonesia's local pyrometallurgy ore in the short term.

For limonite ore, due to the impact of a tailings dam collapse incident at some projects in the MOROWALI Industrial Park, MHP production decreased in April, and downstream smelters pushed down limonite ore prices. As of May, most related projects in MOROWALI have resumed production, and market demand for limonite ore has rebounded. Looking ahead, there are expectations for new HPAL projects to come online in H2, and the subsequent supply and demand dynamics for limonite ore may start to tighten. SMM expects that limonite ore prices may hold up well in the future.