The market is in a state of equilibrium, with nickel ore awaiting quota approvals, ferronickel dependent on demand recovery, and stainless steel anticipating the peak season. This trifecta of uncertainty has resulted in a broadly sideways trading pattern.

Market Prices: A Broad Decline, but Stability Intact

As of August 19, the main Shanghai nickel contract settled at 127,850 yuan per tonne, with LME nickel at $17,130 per tonne, both showing a weak and volatile trend since the start of August. The main stainless steel contract was at 14,260 yuan per tonne, while spot prices for 304 cold-rolled coil in Wuxi were reported at 15,200 yuan per tonne, creating a basis of 940 yuan per tonne.

During the week of August 10-14, the main Shanghai nickel contract fell 2.62% from 130,310 to 127,040 yuan per tonne. The main stainless steel contract dropped 3.75% from 14,730 to 14,115 yuan per tonne. Meanwhile, spot 304 prices in Wuxi remained stable at 15,500 yuan per tonne, leading to a widening basis as nickel prices declined faster than physical market prices.

The central tension is clear: nickel prices are waiting for clarity on Indonesian quotas, while stainless steel is looking toward the traditional autumn peak season. Since neither catalyst has materialized, prices are drifting lower, but the decline is gradual rather than sharp.

Nickel: The Quota Negotiation as the Pivotal Factor

The most critical issue in the nickel market remains the mid-year adjustment of Indonesia's RKAB quotas, where negotiations have reached an intense stage. Reports from the WBN mine requesting an additional 25 million wet metric tonnes of quota have been publicly denied by the ESDM minister, who declined to confirm specific figures. The APNI industry association has suggested maintaining quotas at 260-270 million tonnes, with only selective increases for smelters with low ore inventories, which has marginally eased expectations of tight ore supply. In a compromise move, the DSI export body established in May has been scaled back to a monitoring role only. Additionally, new export regulations from June require inspection reports and export permits for ferronickel, with a planned transition to state-owned enterprise-only exports by 2027. Customs has also introduced new inspection rules involving rare earth and radioactive material checks, though the ESDM confirmed on August 7 that obstacles for nickel and other mineral exports have been resolved. The window for supplementary quota applications was limited to July 1-31, with new quotas tied to domestic smelting capacity, making approval for pure mining operations unlikely and keeping overall supply additions highly uncertain.

In summary, there are conflicting statements from various parties about quota approvals, leaving the market in a state of anticipation until a definitive resolution emerges.

On the cost front, the HMA nickel benchmark price for the latter half of August was set at $16,960 per tonne, up $314 from the first half. The Ni 1.5% benchmark price stood at $58.54 per wet tonne, with actual transaction premiums of +$2 to +$5 per wet tonne, near the bottom of the range, suggesting limited room for smelters to further pressure prices. Philippine 1.5% grade ore was quoted at $65 per wet tonne CIF, with supply recovering after the rainy season, though freight costs remain elevated. The ore cost structure provides a floor, but lacks strong upward drivers, pointing to narrow price fluctuations until quota decisions are finalized.

Refined nickel faces its biggest challenge from high inventory levels. Chinese refined nickel stocks totaled 116,783 tonnes as of August 14, with 101,387 tonnes in warrants, while LME inventories reached 264,732 tonnes, bringing global visible stocks to over 370,000 tonnes. Domestic refined nickel production schedules have been reduced, with operating rates falling to 55% as smelter profits compress, leading some companies to cut output. While inventory levels are undeniably high, there are signs of marginal improvement, with slower accumulation and some production cuts. The extreme cash cost is estimated at around 125,400 yuan per tonne, providing relatively strong cost support.

Stainless Steel: Falling Costs, Rising Stocks, and a Yet-to-Arrive Peak Season

August production plans for domestic stainless steel crude steel stand at 3.84 million tonnes, up 4.4% month-on-month and 10% year-on-year. The 300-series accounts for 1.9755 million tonnes, up 7.14% month-on-month. However, slower logistics have delayed arrivals, meaning that once supply chains normalize, the market could face rapid supply pressure, testing downstream demand absorption capacity.

Demand remains in its traditional off-season, with home appliances, kitchenware, and decoration sectors only making necessary purchases. Weakness in the property sector continues to weigh on construction-grade steel, while infrastructure provides only marginal support. Downstream segments are struggling more than the nickel market, with no new orders in the textile sector. The one bright spot is the ternary precursor segment, which maintained high production levels, with July ternary cathode material output reaching 89,220 tonnes, up 2.48% month-on-month, showing strong resilience in nickel demand.

Inventory levels have returned to an accumulation phase. As of August 13, social inventories across 89 domestic stainless steel sample enterprises stood at 1.1059 million tonnes, up 1.75% week-on-week. The 300-series inventory has increased and remains at elevated absolute levels, with supply recovery expectations preventing any fundamental easing of inventory pressure.

Cost support is weakening as both ferronickel and ferrochrome prices decline. High-grade ferronickel is holding around 1,134 yuan per nickel point, but market expectations of a ferronickel surplus are strengthening, suggesting bearish outlook. High-carbon ferrochrome is priced at 8,000 yuan per tonne, with high port inventories and ample supply from South African powder keeping ore prices under pressure, leading to lower bid prices from major steel mills in August. Based on ferronickel at 1,150 yuan per nickel unit, stainless steel cash costs are around 14,400 yuan per tonne, while the current stainless steel price of 14,100 yuan already factors in a lower ferronickel expectation of 1,110 yuan per nickel unit.

Stainless steel producers are facing margin compression from both sides. The external high-grade ferronickel process for 304-grade steel is currently losing 1,134 yuan per tonne, which explains why mills are trying to hold prices firm, but also why the market remains under pressure.

Industry Chain Profitability: A Puzzle Where Losses Persist Without Production Cuts

The core contradiction is that while ore supply remains tight and smelting operations are loss-making, stainless steel production continues to increase. This state of "operating at a loss" indicates that upstream policy distortions are disrupting normal market transmission mechanisms. Surprisingly, the end-market demand for ternary batteries and 300-series stainless steel has shown strong resilience, contradicting the pessimistic expectations seen earlier this year.

Three Key Signals to Monitor

The Indonesian quota decision remains the most critical variable. Whether the WBN's 25 million tonne quota request is approved, and in what amount, will directly determine nickel ore price direction. Approval would likely push ore prices down and drag nickel prices lower, while rejection would maintain tight supply and support nickel prices.

Ferronickel inventory changes are another key indicator. Monthly accumulation has been running at 5%, but this week saw a slight drawdown of 0.3 to 98,000 tonnes. Whether this destocking trend can be sustained will be crucial in determining the price floor for ferronickel.

The realization of the "golden September, silver October" peak season is the third signal. Late August to early September marks the first observation window for stainless steel demand recovery. If the peak season fails to materialize, inventory pressure will intensify, and the 14,000 yuan level may not hold.

Conclusion: A Market Defined by Waiting

Nickel and stainless steel are currently in a phase of anticipation. Nickel awaits quota clarity, while stainless steel awaits the arrival of its peak season. During this period, ore prices are falling but at a slow pace, inventories remain high but the impact is becoming muted, and losses are widening yet production continues. In such conditions, maintaining a strong directional bias is risky. In this broadly weak and volatile environment, long positions require patience, short positions require clear signals, and calendar spreads currently offer limited value. Patience and waiting for clearer signals will prove more rewarding than impulsive action.