The London Metal Exchange (LME) has announced a two-year reform plan. In light of the significant increase in Asian production of Class I nickel, the LME will provide a "fast track to market" for new Class I nickel products. This method allows new Class I nickel products to enter the LME market after three months of regular sample testing. The LME also announced a waiver of listing fees for new products. The LME also plans to launch a new Class II nickel spot market product at the Qianhai Joint Trading Centre in China. The LME believes that the additional inventory likely to come on to the market will increase liquidity and offset concerns about a structural divergence in the category I and II nickel markets.
The LME further acknowledged market concerns about margin levels for LME nickel contracts, which are primarily driven by high historical volatility but are expected to decline as liquidity increases following the resumption of Asian trading hours and other initiatives. The daily price cap will become a permanent rule, the LME said, with a 12 percent daily price cap for aluminum and copper scheduled to be in place by the end of the second quarter of this year. In addition, LME Clearing is working with key stakeholders to assess the scope of the change in [margin] methodology and recognises that this step will require regulatory and other approvals.
Gu Fengda, head of the nonferrous and new materials research team of Guosen Futures, said that LME recently launched a package plan to try to explore solutions to the real problems faced by its traditional strength in nonferrous pricing, such as extreme price volatility risk, lack of deliverable inventory and margin risk. According to the information disclosed by foreign media, the above plan of LME is still in the stage of "market briefing", and the implementation process of LME plan will be discussed with industry traders and representatives of trade giants, and obtain the approval of relevant regulatory authorities.
In his opinion, industry related institutions and market investors should have a good understanding of major rule changes and adjustments such as "game rule modification" and "enforcement interpretation power" in LME market, so as to prevent market shocks such as price divergence at home and abroad and changes in overseas deliverable varieties caused by changes in LME policy. For market participants, more cautious about the current London nickel market liquidity is relatively low.
"The LME finally resumed Asian trading this week, but the issue of illiquidity and high price volatility in the London nickel market is still highlighted." Feng Wenyong, a non-ferrous metals researcher at Jinrui Futures Research Institute, said that considering that the price of pure nickel, as a delivery resource, is still at a significant premium to the price of secondary nickel, and the low inventory and low warehouse order status in the LME market has not changed for the time being, participants still need to pay attention to the risk of London nickel squeeze and rationally view the difference and fluctuation of nickel prices at home and abroad.
Nickel market second quarter where to go?
On March 30, the main Shanghai nickel contract fell 2.53 percent to end the day at 176,580 yuan/ton, and continued to fall 2.14 percent in the evening session to 173,680 yuan/ton. Why did the nickel market resume its decline after a brief recovery? Where will nickel prices go in Q2? Many analysts believe that weak supply and demand and structural reconstruction or the second quarter nickel price return long bear road.
"It can be seen that macro and industrial negative factors have been released since February. Strong industrial supply and weak demand as well as loose cost support have continued to drag down nickel prices. However, low pure nickel inventory and nickel sulfate conversion to electrodeposited nickel have brought certain support to nickel prices." In the view of Feng Wenyong, a researcher of nonferrous metals in Jinrui Futures Research Institute, this round of price adjustment has been basically in place, and the core variable lies in the downstream demand repair process and industrial replenishment pace.
In the short term, he says, nickel's market-driven logic is a game of cost, inventory, supply and demand, and macro volatility. First of all, cost and low inventory are still important support for nickel price. If the price breaks down, it will lead to production reduction of the industrial chain or the delay of new projects, which is bound to lead to the restoration of the long-term balance. Secondly, the reality of "strong supply and weak demand" of the industrial chain is the main logic of the bears, especially the new production capacity at the supply side is still continuously released, and the contradiction of nickel plate supply is gradually repaired. And the demand end of the stainless steel performance is depressed, new energy is still in the passive storage stage, the market has been waiting for the peak season industry replenishment has failed to cash. Finally, the risk of economic recession in the context of bank crisis in overseas markets and interest rate hikes in Europe and the US may become a hot spot for market trading at any time.
"At present, the nickel market is facing a sensitive point of short-term rapid fluctuations. With the release of new projects, the dilemma of low inventory tight balance of pure nickel is expected to ease, and the structural support of nickel will be gradually weakened." Gu Fengda said that since the first quarter, the domestic first and second grade nickel supply overall volume at the same time, the downstream demand weak reality to strong expectations of the conversion has not arrived, is expected to the future nickel market oversupply is a probability event, the second quarter nickel and other non-ferrous varieties of domestic and foreign prices and price fluctuations may be amplified.
Looking ahead to the second quarter, Feng Wenyong said that on the supply side, there will be new secondary nickel projects put into production in Indonesia, nickel ore supply will increase significantly after the end of the rainy season in the Philippines, it is expected that related nickel products in Southeast Asia will flow back to China in large quantities, and the monthly supply of pure nickel in China will exceed 18,000 tons under the production of electrodeposited nickel. At the same time, taking into account the downstream demand in the second quarter or difficult to exceed the expected performance, the nickel market in the second quarter as a whole or show weak oscillation, the price center of gravity is expected to move further down. From the perspective of the whole year, nickel supply to the overall surplus is a relatively certain thing, nickel price has been in the downward channel, the probability of Lun nickel down 20000 USD/ton, Shanghai nickel down 150000 yuan/ton is still large.
From the hot spot of nickel market in the second quarter, Wang Yanqing, non-ferrous metal analyst of Citic Jiantou Futures, believes that with the decline of nickel price, the premium between pure nickel and nickel sulfate narrates or even turns negative, the output of electrodeposited nickel may no longer be profitable, and the market's expectation of sufficient supply of pure nickel may change at any time. In addition, the market is still gaming the current situation of low pure nickel inventory to some extent, which has also led to a considerable rebound in nickel prices recently. Market investors still need to pay close attention to the high volatility risk of nickel prices. On the whole, considering that the current nickel supply capacity of Indonesia is still increasing and the output of nickel wet process intermediate products is also increasing, nickel oversupply in 2023 is the general trend, and nickel prices will still tend to decline in the future.
