[SMM Analysis] Nickel prices have once again broken through the 120,000 yuan/mt Ni threshold. What are the driving factors?

The most-traded SHFE nickel contract (2507) rebounded strongly for two consecutive days on June 25-26, rising from 117,690 yuan/mt to 120,830 yuan/mt, with a single-day gain of 2.45% today, returning to the 120,000 yuan threshold. SMM believes the driving factors behind this rebound are as follows:

1. Favorable macro policies and easing geopolitical tensions:

The domestic central bank conducted 300 billion yuan of Medium-term Lending Facility (MLF) operations on June 25, achieving a net injection of 118 billion yuan, marking the fourth consecutive month of excess renewals and injecting liquidity into the market. Six departments jointly launched 19 measures to boost consumption, covering areas such as trade-in policies for consumer goods and financing support for business entities, significantly improving the demand outlook for industrial metals. Meanwhile, diverging expectations for US Fed interest rate cuts have intensified, with Trump's "shadow Fed" plan exposed and Powell potentially being sidelined early. Announcing cuts in advance could allow the nominee to influence market expectations for the future interest rate path earlier, with the candidate expected to cooperate with Trump in implementing a looser interest rate policy. Additionally, Iran and Israel recently reached a temporary ceasefire agreement, easing geopolitical risks and leading to a decline in gold and crude oil prices, with risk aversion sentiment fading.

2. Technical oversold rebound:

Nickel prices had previously fallen continuously to around 116,670 yuan/mt, approaching the cost line of electrodeposited nickel, triggering some funds to enter the market on dips. Spot premiums for refined nickel remained stable, with Jinchuan nickel premiums maintained at 3,000 yuan/mt, indicating strong reluctance to budge on prices among spot traders.

However, from a fundamental perspective, it is expected that the sustained rebound momentum of nickel prices will be insufficient. On the supply side, global refined nickel capacity continues to be released, with accelerated commissioning of hydrometallurgy projects in Indonesia. On the demand side, both stainless steel and new energy sectors are weak, with the off-season effect becoming prominent. Traditional downstream sectors of refined nickel, such as alloys and electroplating, only maintain just-in-time restocking, with overall demand elasticity lacking. From the inventory perspective, LME nickel inventory rose to 204,360 mt as of June 25, while domestic SMM six-region social inventory stood at 38,223 mt. Global nickel inventory levels remain high, with destocking progressing slowly.

Based on the current combination of macro and fundamental factors, SMM believes that this rebound in SHFE nickel is more a result of the resonance between macro sentiment recovery and oversold technical conditions, rather than a substantive improvement in fundamentals.Against the backdrop of clear supply growth, no significant improvement in demand, and persistently high inventory levels, nickel prices are unlikely to experience a trending upward rally. After a short-term rebound, they may face renewed pressure, with the expected operating range for nickel prices in the coming period being 115,000-121,000 yuan/mt.