[SMM Analysis] Nickel prices surged strongly this week, with a slight destocking on a weekly basis.

This week, the global nickel market experienced a shift in expectations. Despite the unchanged weak fundamentals, rumors about Indonesia's claim of significantly tightening nickel ore quotas by 2026 ignited market sentiment, driving global nickel prices to rise sharply and reaching the highest point for H2. The most-traded SHFE nickel 2602 contract once exceeded 130,000 yuan/mt, with a weekly gain of 9%; due to the Christmas holiday, there was no continuous trading this week, and LME 3M nickel closed at $15,660/mt on Wednesday, up 5% on a weekly basis. In the spot market, the average price of #1 refined nickel from SMM was 126,870 yuan/mt, up 9,600 yuan/mt WoW; the premium for Jinchuan nickel averaged 7,000 yuan/mt this week, up 500 yuan/mt WoW, while the premiums and discounts for domestic mainstream brands of electrodeposited nickel ranged between -200-400 yuan/mt. Recent spot market transactions remained sluggish, with traders generally holding limited inventory, and a strong wait-and-see sentiment prevailing in the market.

On the macro and market news front, expectations for domestic liquidity easing were reinforced this week. The People's Bank of China conducted 400 billion yuan worth of MLF operations through a fixed quantity, interest rate tender, and multiple-price winning bid method, releasing substantial liquidity. Meanwhile, the offshore RMB strengthened against the US dollar, hitting a new high, providing liquidity support and sentiment boost to the domestic commodity market. Overseas markets were on Christmas break, with the LME market closed and major macroeconomic data releases in Europe and the US on hold. The expectation of supply contraction brought about by Indonesian policies is currently the dominant logic in the market. The nickel market is now in a fierce tug-of-war between "strong expectations" and "weak reality." In the short term, the center of nickel prices will be driven by market sentiment to maintain a fluctuating upward trend, but it remains capped by high inventory and weak demand fundamentals, with the most-traded SHFE nickel contract price range expected to be between 125,000-130,000 yuan/mt.

In terms of inventory, the Shanghai Bonded Zone inventory was approximately 2,200 mt, flat WoW.

Domestic social inventory was around 58,000 mt, down 846 mt WoW.