The High-Grade NPI Market Continues To Be Weak, And May Operate In The Doldrums In The Short Term Amid The Tug-Of-War Between Sellers And Buyers

This week, the high-grade NPI market continued to be in the doldrums, with prices slightly declining. Specifically, the weekly average price of SMM 8-12% high-grade NPI was 901 yuan/mtu (ex-factory, tax included), down 4.3 yuan/mtu WoW. The FOB index price of Indonesian NPI was reported at USD 109.8/mtu, down USD 0.6/mtu WoW. This price trend is the result of multiple factors acting on both the supply and demand sides, with the market presenting a complex pattern dominated by buyers but with expectations of weakening supply.​

Supply side: Production at domestic and overseas smelters is constrained, with expectations of weakening high-grade NPI production​

In the domestic market, the CIF price of Philippine nickel ore continues to face downward pressure. As the losses of downstream enterprises continue to widen, the market's purchase willingness has dropped to a low level, and nickel ore prices have continued to decline this week. However, this price decline has not stimulated the production enthusiasm of smelters, with domestic high-grade NPI production remaining at a low level. This is mainly because despite the decline in nickel ore prices, the overall smelting cost remains high, and there are no obvious signs of market demand recovery, resulting in insufficient motivation for smelters to expand production.​

The situation in the Indonesian market is more complex. This week, the premium of Indonesian pyrometallurgical nickel ore has slightly declined, which has to some extent alleviated the losses of local smelters but has not fundamentally changed the current situation of losses. It is worth noting that the recent corrective rally in refined nickel prices has significantly enhanced the production drive for high-grade nickel matte. Against this backdrop, some production lines originally producing high-grade NPI have begun to switch to producing high-grade nickel matte, directly leading to expectations of weakening high-grade NPI production.​

Demand side: The stainless steel market shows divergence, with buyer sentiment dominating but local support existing​

The performance on the demand side shows clear divergence. This week, stainless steel futures prices continued to recover, bringing some positive signals to the market, but the spot market performed poorly. The destocking speed in the two major stainless steel markets of Wuxi and Foshan remains slow, and inventory pressure has not been effectively alleviated. This has made stainless steel mills cautious about purchasing raw materials, with weak purchase willingness.​However, as stainless steel spot prices stopped falling and stabilized, the speculative sentiment among some traders began to strengthen. They believed that the current prices were at a relatively low level and started to increase stockpiling, which to some extent supported the prices of marketable supplies. But overall, the buyer's market pattern in the stainless steel market remained unchanged, and the overall weakness in demand was unlikely to be fundamentally reversed in the short term.

Discount situation of high-grade NPI versus refined nickel: The discount margin slightly widened

From the perspective of the discount margin versus refined nickel, high-grade NPI averaged a discount of 304.9 yuan per mtu against electrolytic nickel this week, widening by 1.4 yuan per mtu WoW. This change reflects a more pronounced relative weakness in the high-grade NPI market, further widening the price gap with refined nickel.

The operation of the refined nickel market is influenced by both the macro front and its own fundamentals. On the macro front, the US June CPI data released on Tuesday had a significant impact on market sentiment. The data showed that the US June CPI rose 2.7% YoY, higher than the market expectation of 2.6% and the previous value of 2.4%; the core CPI rose 2.9% YoY, in line with market expectations and the previous value of 2.8%. On a MoM basis, the US June CPI rose 0.3%, in line with market expectations and the previous value of 0.1%; the core CPI rose 0.2%, lower than the market expectation of 0.3% and the previous value of 0.1%. This data indicates an increase in US inflationary pressure, strengthening market expectations for a US Fed rate hike, which is bearish for non-ferrous metal varieties including nickel.

On the cost side, the premium for Indonesian pyrometallurgical nickel ore began to weaken, which is expected to lower the upper cost boundary of the refined nickel pyrometallurgical line, further exerting downward pressure on nickel prices. Affected by this, nickel prices showed sideways movement this week.

From the perspective of the relationship between high-grade NPI and refined nickel, due to poor purchase willingness for high-grade NPI downstream, its price center remains in a downward cycle. The refined nickel market, on the other hand, may continue to maintain a weak sideways movement in prices due to macro uncertainties and its own fundamental weakness. Overall, it is expected that the average discount margin of high-grade NPI versus electrolytic nickel may narrow somewhat next week. Cost and Profit: The continuation of smelter losses is expected to improve in the future.

From the cost side, calculating the cash cost of high-grade NPI based on nickel ore prices 25 days ago, the trend of smelter losses for high-grade NPI continued this week. On the raw material side, auxiliary material prices showed a steady increase this week. Meanwhile, the ongoing implementation of China's "anti-rat race" competition policies has driven up the prices of ferrous metals, leading to a generally stable with slight rise in auxiliary material costs for smelters this week.

The situation at the nickel ore end differs. Affected by weakened downstream acceptance, nickel ore prices in the Philippines have loosened. The main reason for the deepening of smelter losses this week remains the continuous weakening of finished product prices. It is expected that next week, auxiliary material prices may continue to recover, and auxiliary material costs for smelters will continue to hold up well. As for nickel ore, driven by the loosening of prices, smelter nickel ore costs may decrease. Overall, it is expected that the extent of smelter losses will narrow next week.

Considering factors such as supply and demand, cost and profit, and the SHFE/LME price ratio with refined nickel, although the current buyer's market pattern for high-grade NPI remains unchanged, supported by the expected weakening of the supply side, high-grade NPI prices may exhibit a weak and stable trend in the short term. For refined nickel, macro front uncertainties and its own weak fundamentals will continue to keep its prices in a weak sideways movement. The discount between high-grade NPI and refined nickel is expected to narrow next week. The market should closely monitor further changes in the supply-demand pattern and the impact of macroeconomic data on market sentiment.