[SMM Analysis] Review of the Nickel Market in May: Where Will Nickel Prices Go After Falling Below 120,000?

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1. Spot Market: Weakening Premiums and Sluggish Transactions

In terms of spot market prices, the SMM 1# refined nickel price showed a slow downward trend in May, with an average price of 124,683 yuan/mt, down 1,012 yuan/mt MoM from April. The average premium/discount for 1# Jinchuan nickel in May was 2,200 yuan/mt, a decrease of 300 yuan/mt MoM from 2,500 yuan/mt in April. In terms of transactions, restocking after the Labour Day holiday was short-lived, with some downstream enterprises replenishing their stocks at lower prices, but the momentum was not sustained. Spot transactions in May were mainly driven by immediate demand, with low enthusiasm for stockpiling among enterprises.

2. Weak supply and demand: The surplus pattern in the global nickel market persists.

According to SMM data, the production of refined nickel in May 2025 was approximately 35,000 mt, down 2.6% MoM and up 37.8% YoY. In June, affected by the decline in nickel prices, the production schedules of some smelters are expected to decline, leading to a continued MoM decrease in overall production.

The demand side also shows structural weakness:
- Stainless steel sector: Confidence in the stainless steel industry remains low, with steel mill profits under pressure and production schedules declining MoM. The off-season effect is evident, with steel mill inventories accumulating and purchase willingness suppressed. Nickel demand only meets basic needs.
- New energy sector: From January to April 2025, the cumulative installed capacity of power batteries in China was 184.3 GWh, up 52.8% YoY. Among them, the cumulative installed capacity of ternary batteries was 34.3 GWh, accounting for 18.6% of the total installed capacity, down 15.9% YoY. The dominance of LFP has strengthened, with its share increasing, further squeezing the application space for nickel in power batteries.
- Alloy and special steel sector: Currently, demand for alloy and special steel remains stable. According to SMM statistics, the demand for refined nickel from alloys in May was approximately 13,000 mt. As this sector accounts for less than 10% of the downstream nickel demand, it is not enough to reverse the surplus.

3. High inventory pressure: Global apparent inventory continues to accumulate, with the London Metal Exchange (LME) inventory rising steadily.

As of May 29, LME nickel inventory reached 200,142 mt, experiencing destocking of approximately 1,788 mt compared to the beginning of the month. Domestic inventory showed a divergent trend: the SMM six-region social inventory experienced slight destocking, decreasing by 2,535 mt from the beginning of the month to 41,553 mt at month-end. Inventory in bonded areas continued to decline, dropping by 900 mt to 5,000 mt in May, with the import window remaining closed.

4. Macro disruptions and policy uncertainties become the dominant factors in the market.

In early May, China and the US reached an agreement to "remove tariffs on 91% of goods", marking a breakthrough in trade easing between the two countries. This alleviated the cost pressure on export-oriented manufacturing industries, as well as the export pressure on nickel's downstream industries, such as stainless steel and battery materials. Market expectations for metal demand improved. Meanwhile, China's central bank, the National Financial Regulatory Administration, and the China Securities Regulatory Commission jointly announced a package of financial policies to stabilize the market and expectations, enhancing expectations for liquidity easing and warming market sentiment for industrial products. However, by late May, the market's optimism over the reduction of China-US tariffs had dissipated, lacking new driving forces. On May 20, the central bank cut the LPR by 10 basis points, but corporate and household credit demand remained sluggish, with weak willingness for physical consumption and investment. The effect of liquidity release on boosting metal demand was not significant, and nickel prices struggled to rebound. At the end of May, market rumors emerged that Indonesia's quotas would increase to 320 million wmt, prompting short-sellers to enter the market. On the same day, the open interest of the most-traded SHFE nickel contract surged to 107,000 lots, and nickel prices fell by 2% in a single day. However, after verification by SMM, the news was found to be false. Indonesian authorities stated that no large-scale approvals for supplementary quotas had been made in the past two weeks. Subsequently, nickel prices rebounded, with LME nickel prices returning to the $15,300/mt level and the most-traded SHFE nickel contract rebounding to 121,000 yuan/mt.

Overall, the sharp fluctuations in nickel prices in May were mainly due to macro disturbances. After excluding the abnormal disturbances in the candlestick, SHFE nickel futures prices mainly showed a slow decline under the dual pressures of "weak fundamentals" and "high inventory". After the Dragon Boat Festival, whether the stockpiling demand of downstream enterprises can be released will test the strength of price support. Currently, nickel prices are struggling at the edge of the cost line, and industry restructuring may accelerate. Looking ahead, the supply surplus situation is unlikely to change, with a lack of bright spots in demand, weak macroeconomic stimulus, and a certain level of support for nickel prices from the rising costs of Indonesian nickel ore. It is expected that nickel prices will remain in a range of weak oscillations.