Nickel prices experienced a significant decline in June, pressured by substantial supply additions from the Philippines, expectations of new quotas from Indonesia, and a persistently loose supply environment for refined nickel. The main Shanghai nickel contract fell below 125,000 yuan, finding support near cost levels after reaching low points, leading to a period of sideways trading in July.

Nickel Ore Prices See Adjustments

Following April, nickel ore supply from the Philippines recovered rapidly, leading to a continuous decline in ore prices. This week, domestic CIF offers for 1.3% grade ore were around $47 per wet ton, 1.4% grade at $57, and 1.5% grade at $63, showing a pattern of weak stability. After July, ocean freight rates also generally declined, with the rate from Surigao to Lianyungang approximately $13 per wet ton, down about $2.5 from June. Data from China's General Administration of Customs shows that China imported 5.96 million tons of nickel ore in May, a significant month-on-month increase and a 52.7% year-on-year rise, primarily influenced by a substantial supply increase from the Philippines. Cumulative imports for January to May reached 13.86 million tons, up 33.2% year-on-year, with imports from the Philippines accounting for about 89% of the total. Regarding port inventories, as of July 10th, Mysteel data shows nickel ore inventories across 14 Chinese ports stood at 10.47 million wet tons, showing an overall increasing trend, with Philippine-origin nickel ore inventories at 10.07 million wet tons.

In Indonesia, there have been minor disruptions in ore shipments, but smelters generally maintain sufficient raw material inventory, limiting the impact on procurement pace. The first HMA nickel reference price for July was significantly lowered by about 7.6% compared to the second June price, with domestic ore prices in July falling by approximately $5 per wet ton. The application period for supplementary RKAB quotas opened in July, with submissions accepted throughout the month. New quotas must be tied to local Indonesian smelting capacity. The Ministry of Energy and Mineral Resources (ESDM) has previously indicated that the overall quota for this year will maintain a tightening stance. While there are expectations for an upward adjustment, the magnitude of the change may not be substantial. The approval status of new quotas this month is a key focus.

Intermediate Product Supply Remains Stable

According to Mysteel, combined nickel pig iron (NPI) production in China and Indonesia for June, calculated on a metal content basis, was 164,300 tons, a slight decrease of 1.1% month-on-month. Cumulative production for January to June was 953,500 tons, down 8.4% year-on-year. Indonesia's June production was 136,200 tons, down about 1.9% month-on-month due to tight raw material supply and reduced production loads at some parks due to power allocation issues. No new production lines were commissioned during the month, and production in July is expected to remain stable. China's NPI production in June was 28,100 tons, up about 3% month-on-month, as domestic NPI plants operated with small profits and faced no raw material shortages. July production is also forecast to be stable. China's cumulative imports of ferronickel for the first five months were 4.317 million tons, down 2.6% year-on-year, with imports from Indonesia accounting for about 96%. As Indonesian production declines, subsequent import volumes may follow suit. In the spot NPI market, a divergence between buyers and sellers persists. Sellers' offers are around 1,150-1,160 yuan per nickel point (ex-hold), while steel mills' target purchase prices are 1,120-1,140 yuan per nickel point. The tight supply situation for high-grade resources remains unchanged, with spot transactions limited, and steel mills primarily procuring through long-term contracts.

According to Mysteel, Indonesia's production of mixed hydroxide precipitate (MHP) in June, on a metal content basis, was 30,300 tons, recovering from May levels. High-grade matte nickel production in June was 26,800 tons, slightly down from May. The sulfur supply situation in Indonesia remains generally tight recently, though marginally eased. The Huafei nickel-cobalt project is in a state of continuous resumption. China's total imports of nickel intermediate products from hydrometallurgical processes for the first five months were 749,000 tons, with the cumulative year-on-year growth rate slowing to 1.9%.

Refined Nickel Production Sees Slight Decline

Domestic refined nickel production in June, according to Mysteel, was 31,760 tons, down 5.9% month-on-month and 8% year-on-year, marking a second consecutive month of decline. Capacity utilization fell to 60.77%, with profits for all refined nickel production processes in negative territory. Production in July is expected to continue a slight decline, while subsequent nickel prices will receive support from cost factors. Indonesia's refined nickel production in June was 8,800 tons, down 1,000 tons from May, retreating from higher levels.

Domestic refined nickel inventories show signs of halting their increase. Last week, total nickel inventories on the Shanghai Futures Exchange fell by 2,525 tons to 99,097 tons. Registered warrant volumes this week have been weakly stable around 98,080 tons, remaining at historically high levels overall. Spot premiums for Jinchuan electrolytic nickel have risen slightly, but downstream acceptance is limited, making a significant increase in activity difficult. LME nickel inventories have largely hovered around 274,000 tons since June. Registered warrant volumes saw some decline in early July, currently around 258,000 tons, still at elevated levels, with the cash-to-three-months spread maintaining a discount of around $200 per ton.

Overall Demand Slightly Weak

On the stainless steel front, Mysteel data shows domestic 300-series stainless steel crude steel production in June was 1.9745 million tons, down 4% month-on-month but up 13.2% year-on-year. Affected by weak demand and seasonal maintenance, July's planned production is estimated at 1.8721 million tons, continuing the sequential decline. Steel mills hold a cautious outlook for demand recovery, actively contracting supply. Since late June, a steel mill in Jiangsu began a one-month shutdown for maintenance. Over the past month, social inventories of 300-series stainless steel have hovered around 695,000 tons, with inventory pressure not overly severe. Terminal demand is in a seasonal lull, with procurement mostly for immediate needs.

On the new energy front, prices for battery-grade nickel sulfate have continued to decline, with downstream restocking sentiment weak. Regarding terminal demand, China's production and sales of new energy vehicles in June reached 1.598 million and 1.643 million units respectively, increasing by 26% and 23.6% year-on-year, with growth rates slightly higher than in May. Recently, news of a Chinese-funded new energy battery plant rapidly withdrawing from Indonesia has drawn attention. Tightening Indonesian policies are affecting the investment plans of Chinese companies, but leading major manufacturers continue normal operations, and some projects are still advancing. Policy-related disruptions warrant attention.

Summary

Overall, in the external environment, fluctuating expectations regarding Federal Reserve interest rate hikes and the US Dollar Index hovering around 101 are exerting slight pressure on base metals. On the supply and demand front, Philippine nickel ore supply is increasing rapidly, keeping ore prices weak. The market awaits the approval results of Indonesia's new quotas for July. For intermediate products, Indonesian NPI production contracted in June while Chinese production increased slightly, with total production expected to remain stable in July. A significant gap exists between buyer and seller offers. Indonesian hydrometallurgical intermediate product production saw a slight recovery. Chinese refined nickel production declined slightly from high levels, with enterprise capacity utilization also falling. Under loss-making conditions for smelters, cost factors provide support for nickel prices. Domestic nickel inventories show signs of halting their increase, and LME nickel registered warrants have also declined, indicating a marginal easing of oversupply pressure. Downstream 300-series stainless steel production plans are declining, and terminal consumption is in a seasonal lull, with demand for ternary batteries primarily based on immediate needs. In summary, strengthened nickel ore supply from the Philippines and the market's anticipation of Indonesia's new quota approvals for July are weighing on nickel prices, while cost-side support provides a floor. In the short term, nickel prices are likely to trade within a narrow range at lower levels. For reference only.