[SMM Analysis] Nickel prices closed higher after experiencing sharp fluctuations this week, while domestic inventory still increased significantly.

Nickel prices continued to be dominated by expectations of tightening nickel ore production quotas (RKAB) in Indonesia for 2026, closing strongly higher after sharp swings. At the start of the week, the market digested previous gains and corrected due to inventory pressure, but mid-week, Indonesian officials reiterated quota reduction targets, strongly stimulating bullish sentiment and driving a robust rebound in nickel prices, with the most-traded SHFE nickel contract hitting the daily limit at its peak during the week. Although strong expectations of supply contraction continued to build, the weak reality of high global inventories and sluggish downstream demand remained fundamental constraints, leading to sharp price volatility.On the spot market, the average price of #1 refined nickel was 147,580 yuan/mt this week, up 7,450 yuan/mt WoW. The average premium for Jinchuan nickel was 8,200 yuan/mt, down 2,500 yuan/mt WoW. Premiums and discounts for mainstream domestic electrodeposited nickel ranged from -200 to 500 yuan/mt. Spot trading of refined nickel was sluggish this week, with speculative stockpiling fading and end-user purchase willingness remaining weak.

On the macro front, domestic easing policies intensified. On January 15, the People's Bank of China announced a 0.25 percentage point cut in interest rates for various structural monetary policy tools, with the one-year relending rate dropping to 1.25%, aimed at strengthening countercyclical adjustments and providing liquidity support to the market. The US dollar index rebounded this week, hitting a four-week high of 99.49, as stronger-than-expected US non-farm payrolls data pushed back market expectations for the timing of US Fed interest rate cuts. In the short term, the tug-of-war between Indonesian policy expectations and high inventory reality will persist, with nickel prices continuing to fluctuate at highs. The most-traded SHFE nickel contract is expected to trade in the range of 140,000–155,000 yuan/mt.

Inventory-wise, Shanghai Bonded Zone inventory stood at around 2,200 mt this week, flat WoW.

Domestic social inventory was about 64,000 mt, up 2,463 mt WoW.