[SMM Analysis] US Expands Treasury Buybacks to Boost Macro Sentiment, This Week Nickel Prices Bottom Out

Nickel prices bottomed out and rebounded this week, with macro sentiment dominating the pace. Early in the week, supported by mild cooling in the US July PPI and further decline in expectations for US Fed interest rate hikes, nonferrous metals generally rose, and the most-traded SHFE nickel contract rebounded from lows last week; mid-week, the 10-year US Treasury yield once climbed to 4.75%, a new high since January 2025, putting nickel prices under pressure, pulling back to a weekly low of 127,850 yuan/mt; on Thursday, the US Treasury unexpectedly announced expansion of the size of long-term nominal Treasury buybacks, triggering a rebound in US Treasuries and a sharp intraday drop in the US dollar index, with both LME nickel and SHFE nickel surging; SHFE nickel night session rallied sharply, reclaiming the 130,000 yuan/mt level, before pulling back slightly on Friday,resulting in a weekly gain of about 0.6% WoW. On the spot market front, the SMM #1 refined nickel average price this week was 129,290 yuan/mt, up 180 yuan/mt WoW; the Jinchuan refined nickel premium widened from 1,400 yuan/mt to 1,550 yuan/mt mid-week and then stabilized; discounts for mainstream electrodeposited nickel narrowed significantly, briefly rising to the 0-500 yuan/mt range mid-week, with overall weekly activity still dominated by just-in-time procurement.

On the macro front, US Treasury market turmoil and policy response were the main themes for nonferrous metal pricing this week. In the first half of the week, the 10-year US Treasury yield once climbed to 4.75%, a new high since January 2025, with US dollar strength weighing on metal valuations; on Thursday, the US Treasury unexpectedly announced expansion of the size of long-term nominal Treasury buybacks, and Treasury Secretary Bessent further said he stands ready to expand buybacks of debt with higher financing costs; the US bond market rebounded, long-term yields pulled back significantly, and the US dollar index once fell 0.85% intraday, the largest single-day drop in three weeks, providing a significant boost to USD-denominated base metals. On the geopolitical front, the Trump administration announced a new round of "toughest-ever" economic sanctions on Iran and threatened economic action against any countries with commercial ties to Iran, tightening the Middle East situation again and keeping sulfur supply risk premium elevated. On the domestic front, the central bank released July financial data: aggregate social financing increment in the first seven months cumulated 22.25 trillion yuan, down 1.74 trillion yuan from a year earlier; M2 balance at end-July was 355.51 trillion yuan, up 7.7% YoY, with liquidity environment remaining reasonably ample.

On inventory front, bonded zone inventory in Shanghai stood at about 1,400 mt this week, flat WoW. Domestic social inventory was about 131,000 mt, down about 2,500 mt WoW.

Currently, nickel prices are in a tug-of-war between macro tailwinds and fundamental pressure: US expansion of Treasury buybacks and a weaker US dollar are positive for base metals, but both LME and China domestic inventories maintain a rising trend, with visible inventory at historical highs, and Indonesia's RKAB additional quotas remain unresolved. The most-traded SHFE nickel contract is expected to trade in a core range of 127,000-132,000 yuan/mt next week.