In early trading on July 16, nickel prices surged significantly. The most-traded SHFE nickel contract broke through the 130,000 yuan/mt level intraday, once rising to 133,000 yuan/mt, and closed the morning session up 2.9%. LME nickel simultaneously held firm above the $17,000/mt level, rallying about 2.5% in early trading. SMM analysis suggests that the drivers of this rally are as follows:
1. On the macro front, the US June CPI rose 3.5% YoY, far below expectations of 3.8% and the previous 4.2%, while core CPI rose 2.6% YoY. PPI fell 0.3% MoM, its first decline since last year. Inflation cooled more than expected, expectations for US Fed interest rate hikes were pushed back, the US dollar index pulled back, and macro sentiment recovered.
2. On the industrial side, Indonesia’s RKAB quota remains the biggest variable. Indonesia’s Ministry of Energy and Mineral Resources (ESDM) officially announced on July 10, making it clear that it would not raise national nickel mining and production quotas across the board. Only for domestic smelters currently facing severe raw material supply shortages will a strict special approval channel be opened, allowing a moderate addition of a small amount of mining quotas. The approved incremental volumes are extremely limited and will not change the overall supply-tightening situation.
3. Meanwhile, the US-Iran conflict took another turn. On July 12, Iran’s Islamic Revolutionary Guard Corps announced the “indefinite closure” of the Strait of Hormuz. Sulfur supply concerns re-emerged, breaking earlier expectations for lower sulfur prices. Hydrometallurgical nickel costs will remain firm, and the restoration of cost support has added bullish momentum to nickel prices.
In summary, after nickel prices pulled back sharply in early June, they entered a short-term consolidation phase at lows. Recently, macro and policy positives have re-emerged. Meanwhile, from a technical perspective, the MACD formed a golden cross, nickel prices held above the 10-day moving average, bears took profits, and nickel prices have momentum for a rebound. However, the upside is still suppressed by weak demand and high inventories. The most-traded SHFE nickel contract is expected to trade in a range of 127,000-137,000 yuan/mt. Indonesia’s July RKAB quota approval results and the situation in the Strait of Hormuz will remain key factors in determining the direction of nickel prices.
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