Summary: Since September, Shanghai nickel futures have been on a dismal slide, falling from above the 120,000 yuan/ton mark and now barely holding the 110,000 yuan level, with an intra-period decline of over 7% at one point. This week, Tesla CEO Elon Musk again emphasized the importance of nickel in new energy vehicle batteries, and the tight supply of nickel ore persists, yet nickel prices seem unfazed. What factors are dragging Shanghai nickel down lately? Will futures prices remain gloomy?
Since September, Shanghai nickel's performance has been nothing short of abysmal, tumbling from above the 120,000 yuan mark and currently clinging to the 110,000 yuan level; the decline over the period once exceeded 7%. This week, Tesla CEO Elon Musk again stressed the importance of nickel in new energy vehicle batteries, while the tight supply of nickel ore continues, but nickel prices appear indifferent. What is holding back Shanghai nickel recently? Will futures prices stay pessimistic?
Ore-side "tight leash" hard to remove; ferronickel has easing expectations. In 2020, Indonesia officially banned ore exports, leaving China's nickel ore imports largely dependent on the Philippines. However, due to the pandemic, Philippine nickel ore production and exports were significantly constrained, with China's nickel ore imports from March to May all below 2 million tons—the lowest levels for the same period in recent years. In the past two months, the pandemic lockdown in the Philippines was lifted, but local weather issues disrupted August ore loading, and China's port epidemic prevention policies were temporarily tightened, leading to a decline in ore arrivals and keeping port inventories persistently low. As a result, nickel ore prices kept strengthening, providing cost-side support for the nickel ore–ferronickel–stainless steel supply chain. In addition, the main nickel ore producing regions in the Philippines will enter the rainy season in October each year, reducing ore shipments, so port nickel ore inventories are unlikely to improve.
Supported by persistently strong nickel ore prices and earlier high stainless steel production schedules with solid demand, ferronickel prices also climbed steadily. However, stainless steel prices have fallen noticeably recently, squeezing steel mill profits and reducing their acceptance of high-priced ferronickel. At present, ferronickel tender prices have eased slightly, with trading largely stalled. Although Indonesia has banned nickel ore exports, the commissioning of local ferronickel projects has accelerated, and China's ferronickel imports have surged this year. The latest customs data show that ferronickel imports in August reached 291,900 tons, more than double year-on-year. The market is broadly concerned about future supply growth from Indonesian ferronickel and its inflow into China, which will intensify the pressure on domestic high-cost ferronickel capacity.
Stainless steel inventories accumulate; positive feedback in the supply chain weakens. In the second quarter, industrial products broadly showed off-season strength, and the "Golden September and Silver October" period is traditionally a peak consumption season. Earlier, expectations for the peak season were high, and stainless steel traders, optimistic about third-quarter consumption, signed large orders with mills. The entire supply chain underwent healthy destocking, which at one point drove stainless steel prices higher. However, with pandemic disruptions, the pace of domestic industrial product consumption may have been disturbed, and the peak season has clearly underperformed this month. Recently, stainless steel inventories in both Foshan and Wuxi have accumulated, suggesting that stainless steel demand has not shown obvious improvement, and the stainless steel market has cooled markedly since September. That said, nickel ore prices remain elevated, and ferronickel prices have not corrected significantly, leaving steel mill profits severely squeezed and raising concerns that mills may cut production later. This has seriously weakened the positive feedback from the supply chain to nickel prices. Notably, however, stainless steel producers currently lack sufficient conditions for output cuts; near-term and follow-up production schedules remain solid, and some new or converted 300-series capacity is planned for commissioning in the fourth quarter. Moreover, the discount of nickel prices to ferronickel has widened to a two-year high, which may boost demand for refined nickel.
Stainless steel temporarily stabilizes—will nickel prices remain gloomy? This week marks the first anniversary of stainless steel futures listing, and over the past two days, stainless steel has stopped falling and rebounded. However, the US dollar index has kept climbing, and nickel prices are being dragged down by pessimistic sentiment in the nonferrous metals sector, limiting the rebound. With October approaching, Philippine nickel ore exports may start to face disruptions, and the widened discount of electrolytic nickel to ferronickel is positive for demand. The market still holds expectations for stainless steel consumption, and mills have not signaled large-scale output cuts. In the absence of further systemic risks, nickel prices may not be bearish in the short term.