It is expected that the nickel prices will be restricted by the macro front in the near term including US scaling back interest rates, but the price remains resilient as the expected oversupply has not yet reached the pivot, leaving nickel prices with certain cost support, according to Mysteel analysis.
Source: SHFE
On the macro front, the US non-farm payrolls released last Friday September 6 failed short of expectations, triggering market concerns about an economic recession. What's more, whether the expected interest rate cut could spur a commodity price rally stays uncertain, especially when the expectation has already been priced in.
It is generally believed that the current economic data is not solid enough for a 50-basis-point rate cut. That is to say, the risk aversion needs are expected to remain high until the economy shows substantial improvement. In this case, the nickel prices are restricted by the macro front marginally.
On the fundamentals, the global nickel market is persistently oversupplied, but the supply surplus of primary nickel is projected to narrow 150,000 tonnes from 2023 at approximately 86,100 tonnes in Ni. content globally by end-2024. In detail, the first-grade nickel supply glut has been deepening constantly, while the oversupply situation of second-grade nickel has been improving.
Year-to-date, the overseas nickel production has been reducing as the drastic nickel price drop back in 2023 and narrowing oversupply in 2024 squeezed the profits of producers across the nickel industry chain. And the commissioning of new capacity in Indonesia slowed as well. In other words, the supply side constitutes support for nickel prices.
On the cost side, only producing electrowinning nickel with MHP preserves certain profits, and other processes of electrowinning nickel production have all reported losses. Should nickel prices fall further in the short period, the cost support will strengthen in tandem.
In addition, the nickel ore supply situation in Indonesia has attracted wide market attention recently. The Indonesia government recently called for a meeting regarding the country's nickel ore supply situation, signaling a potential ease in its ore supply tightness. Nevertheless, it is unlikely that the nickel ore supply will present a rebound that is beyond expectations.
To sum up, the nickel prices will gain support from the yet to deepen oversupply, though the pressure from the macro front extends. However, Mysteel survey showed that the inventory accumulation of first-grade nickel will probably accumulate in the fourth quarter, potentially weighing on nickel prices should the macro front exert power towards the same direction.
Written by Aggie Hu, huchenying@mysteel.com