Nickel futures markets experienced a decline, with the London Metal Exchange (LME) nickel contract closing down 1.41% overnight. The LME nickel price settled at $17,535 per tonne, a drop of $250, on a trading volume of 4,596 contracts. The domestic Chinese market was closed last Friday for the Dragon Boat Festival holiday and has now reopened for trading.
LME nickel inventories stood at 276,216 tonnes as of June 19, a decrease of 90 tonnes from the previous session.
In the domestic market, Shanghai nickel futures opened lower across the board. The most-active July 2607 contract opened at 134,010 yuan per tonne, down 2,250 yuan from the previous settlement. As of 9:10 AM, the contract was trading at 134,670 yuan, representing a decline of 1,590 yuan. The market exhibited a weak and volatile trend following the low opening.
Key Market Drivers
Macroeconomic factors have been a primary focus. During the holiday period, several global events unfolded, including the closure of the Strait of Hormuz by Iranian forces and the initiation of US-Iran technical talks, contributing to ongoing geopolitical uncertainty. Additionally, South Korea's Producer Price Index (PPI) rose 8.5% year-on-year in May, reaching a four-year high, indicating persistent and higher-than-expected global inflationary pressures. The Federal Reserve's hawkish stance has strengthened the US dollar, which has returned to above the 100 level, putting downward pressure on LME nickel last week. The current market is dominated by monetary tightening expectations, with a strong dollar suppressing the valuation of base metals. While geopolitical tensions have increased shipping costs for nickel ore and operational expenses for hydrometallurgical processes, this has not yet provided a strong upward catalyst. Domestically, demand from the new energy sector remains tepid, with downstream consumers purchasing only as needed. The nickel market is currently caught between conflicting factors, with prices likely to fluctuate based on geopolitical developments.
Industry Supply Chain Analysis
The supply side of the industry is showing significant structural divergence. Imports of laterite nickel ore are facing disruptions due to shipping issues in the Strait of Hormuz, leading to longer delivery times. Coupled with tightening export quotas from Indonesia, supplies of high-grade ore are becoming constrained. For sulfide nickel ore, long-term underinvestment in capital expenditure has resulted in rigid supply and persistently low processing fees. The release of new nickel matte capacity has slowed, limiting available supply in the market. Nickel-cobalt hydroxide production is being constrained by high sulfur prices, leading to lower-than-expected operating rates and output from hydrometallurgical projects. In the recycled nickel segment, the supply of scrap stainless steel and nickel-containing waste materials has tightened, and enterprise operating rates have declined. This overall contraction in supply is providing a floor for prices, as the elasticity of supply across the entire industry chain has noticeably narrowed.
Market Outlook for June 22
The market's focus today will center on the progress of US-Iran negotiations and movements in the US dollar index. If tensions in the Strait of Hormuz escalate again, rising shipping and raw material costs could quickly ripple through the entire supply chain, potentially supporting a rebound in nickel prices from lower levels. Conversely, if negotiations yield signals of de-escalation, combined with continued pressure from a strong dollar, nickel prices may face further downward potential. Overall, nickel prices are expected to remain in a weak and volatile pattern in the near term. The core trading range for spot nickel is anticipated to be between 134,000 and 135,000 yuan per tonne. Market participants are advised to closely monitor opportunities driven by geopolitical events while remaining vigilant of risks associated with sudden shifts in broader market sentiment.