[SMM Analysis] Nickel Prices Plunge Over 2% in a Single Day, Hitting a New Low—Where Is the Short-Term Bottom?

On December 16, global nonferrous metals markets experienced a collective correction, with nickel performing particularly weakly. The most-traded SHFE nickel contract (2601) fell 2.36% for the day, at one point dropping more than 3,000 yuan/mt during the session; LME nickel closed down 2.22% in sync, settling at $14,295/mt, reflecting strong market pessimism.

Futures and spot markets weakened simultaneously: The spot market followed futures prices lower, with sluggish trading. Although the premium for Jinchuan refined nickel rose steadily from 2,500 yuan/mt in early November to the current 5,600 yuan/mt, spot market transactions were mainly small-scale, just-in-time procurement by downstream producers. Most enterprises had completed stockpiling during last month's nickel price decline, and purchase willingness weakened approaching year-end, with many adopting a wait-and-see attitude. Furthermore, against the backdrop of persistently high spot premiums, traders' willingness to stockpile decreased, leading to subdued sentiment in spot transactions.

Supply and demand situation: Although domestic nickel producers generally implemented production cuts in November (according to SMM data, November refined nickel production was 25,800 mt, down 28% MoM), the scale of cuts failed to effectively alleviate inventory pressure. SMM's social inventory for refined nickel reached 59,000 mt in December, with the inventory accumulation rate accelerating. In contrast, LME nickel inventory recently remained around 253,000 mt, indicating persistently weak downstream nickel demand, reduced export orders for enterprises, and a greater shift towards domestic delivery warehouse shipments.

Cost perspective: The continued decline in nickel prices has pushed the industry towards the breakeven point. According to SMM data, the full cost for producing electrodeposited nickel from integrated high-grade nickel matte is 121,000 yuan/mt, while the cost for producing electrodeposited nickel from integrated MHP is 111,000 yuan/mt (after cobalt credit). Benefiting from cobalt price increases driven by the DRC cobalt ban, the cobalt credit value is approximately $4,700/mt. Current nickel prices have fallen below pyrometallurgical cost lines and are gradually approaching hydrometallurgical costs, making hydrometallurgical cost the current market focus for potential downside support. Currently, MHP raw material accounts for up to 45% of refined nickel production in China and Indonesia, becoming the primary source of global refined nickel supply growth. If nickel prices continue falling and break below hydrometallurgical costs, hydrometallurgical production lines would face losses, potentially triggering further production cuts. Additionally, the price of sulfur, a key auxiliary material in MHP, is as high as $540/mt, accounting for about 38% of MHP cost and becoming the largest component. If sulfur prices continue rising, they would further increase the cost of producing refined nickel from integrated MHP, providing support for nickel prices.

Short-Term Outlook: After breaking through key support levels, nickel prices have opened up downside room and are expected to remain in a volatile bottom-seeking phase in the short term. The bottom is supported by the cost of integrated MHP, leaving limited room for further declines. However, upside potential continues to be constrained by high inventory and weak demand fundamentals. The most-traded SHFE nickel contract is projected to trade within a range of 112,000-116,000 yuan/mt.