Nickel prices on the Changjiang Nonferrous Metals market saw a modest increase on the 2nd, with some bottom-fishing demand and a slight uptick in fund positioning.

Shanghai Nickel Market Performance

The Shanghai nickel futures market experienced a slight decline in the afternoon session. The most active September 2024 contract (2609) opened at 126,410 yuan per tonne. It reached an intraday high of 127,840 yuan and a low of 125,110 yuan, ultimately closing at 125,190 yuan per tonne. This represented a drop of 1,210 yuan, or 0.96%, from the previous close. Trading volume for the September 2024 contract stood at 234,065 lots.

According to data from Changjiang Nonferrous Metals Network, the average price for 1# nickel on July 2nd was 126,450 yuan per tonne, up by 1,100 yuan from the previous day. The price range was 125,250 to 127,650 yuan per tonne. Spot prices for 1# nickel in the Changjiang region averaged 126,500 yuan per tonne, also up by 1,100 yuan, within a range of 125,400 to 127,600 yuan. In Guangdong, spot nickel prices averaged 128,200 yuan per tonne, an increase of 600 yuan, with prices ranging from 128,000 to 128,400 yuan.

Key Macroeconomic Influences

Early in the session, signals from the U.S. Federal Reserve indicating cooling inflation and weaker-than-expected ADP employment data fueled expectations for an interest rate cut, providing upward momentum for nickel prices. This was further supported by signs of recovering demand from the new energy sector. However, market sentiment was later reversed by unexpectedly hawkish commentary, which pushed back rate cut expectations and led to a rapid strengthening of the U.S. dollar, putting pressure on base metals. Concurrently, the commencement of Indonesia's nickel ore quota application process led market participants to anticipate a looser supply of raw materials, contributing to the subsequent weakness and volatility in nickel prices.

On the international front, weaker U.S. stock markets and a de-escalation of geopolitical tensions in the Middle East have reduced the commodity risk premium. Domestically, China's stainless steel industry has entered a seasonal lull, with mills undergoing concentrated maintenance and underlying demand proving insufficient. Only the 75% operating rate in ternary precursor production provides minor support. In this environment of conflicting bullish and bearish factors, a sustained rally in nickel prices appears difficult.

Current State of Nickel Raw Materials and Supply-Demand Dynamics

Raw Materials: Lateritic nickel ore supply from Indonesia remains ample, with price increases narrowing the premium. Sulfide nickel ore supply, reliant on high-grade resources from Russia and Australia, remains stable. The supply of nickel matte is increasing with the release of new smelting capacity. Mixed Hydroxide Precipitate (MHP) faces cost pressures due to tight sulfur supply, keeping its price under pressure. The scale of recycled nickel supply remains limited and is insufficient to alleviate the current supply-demand imbalance.

Industry Chain: Indonesia is the dominant force in global nickel smelting capacity, with Chinese enterprises having a deep presence there. China's dependence on imported nickel exceeds 90%, making its upstream sector reliant on imports. While midstream smelting capacity is adequate, downstream demand is being dragged down by the off-season in the stainless steel sector. Incremental demand from the new energy sector is also insufficient to offset this weakness.

Spot Trading and Outlook

Spot market activity remained subdued during the session. As nickel prices fell, some buyers with immediate needs engaged in bottom-fishing, and bullish funds showed some enthusiasm in adding positions. However, overall, a portion of market participants remained on the sidelines, awaiting further price declines.

Looking ahead, international focus will be on the Federal Reserve's policy direction, the upcoming U.S. non-farm payrolls data, and the results of Indonesia's quota approvals. Domestically, attention will turn to adjustments in steel mill production schedules and new energy vehicle production and sales data. In the short term, nickel prices are likely to be capped by high inventory levels and expectations of ample quotas, with a high probability of trading within a weak range of 125,000 to 135,000 yuan per tonne. Close monitoring of the actual implementation of the Indonesian quotas is advised.