Since August, nickel prices have remained in a weak consolidation pattern, with Shanghai nickel dipping to around 126,000 yuan per tonne and LME nickel touching $16,500 per tonne. Oversupply continues to dominate the market, while production costs have edged lower and demand has shown no notable bright spots.

Nickel ore prices in both the Philippines and Indonesia have declined this week. Philippine nickel ore prices saw a slight decrease, with the CIF price for 1.3% grade ore dropping to $44.5 per wet tonne. Shipping costs have remained broadly stable, with freight from Surigao to Lianyungang around $14.5 per wet tonne. However, as geopolitical tensions in the Middle East escalate and crude oil prices strengthen, freight rates are expected to rise.

According to customs data, China imported 5.933 million tonnes of nickel ore in July, up 1.1% month-on-month and 18.9% year-on-year. Cumulative imports for January-July reached 25.654 million tonnes, up 30.2% year-on-year, with shipments from the Philippines accounting for approximately 90% of the total. With the Philippine rainy season approaching, subsequent shipments are likely to gradually contract. In terms of port inventory, Mysteel data as of September 4 shows total nickel ore inventory across 14 Chinese ports at 12.3904 million wet tonnes, with Philippine-origin ore inventory at 11.7404 million wet tonnes during the seasonal build-up phase.

On the Indonesian front, new quotas introduced mid-year are gradually being implemented. However, to prevent sharp nickel price fluctuations, authorities have not publicly disclosed the specific quota adjustment magnitude. Market reactions suggest a significant relaxation compared to the first half. The Ministry of Energy and Mineral Resources has confirmed that the 2027 mining RKAB will maintain an annual reporting mechanism under current applicable standards. In early September, Indonesian nickel ore prices were slightly lowered, with the CIF price for 1.6% Ni grade falling 2.4% from late August to $65.14 per wet tonne.

Nickel pig iron supply is relatively loose. According to Mysteel, combined China and Indonesia NPI production in August stood at 174,500 tonnes on a metal basis, up 4.5% month-on-month. Cumulative production for January-August totaled 1.2949 million tonnes, down 7.3% year-on-year. August's increase was primarily driven by Indonesia, which produced 146,900 tonnes, though September output is expected to decline. China's August production was 27,600 tonnes, slightly down month-on-month, with September levels expected to hold steady. Profit margins for nickel pig iron production have recently narrowed but remain marginally positive overall.

In early September, reports emerged that drought triggered by El Ni帽o had restricted water supply to smelters in Indonesia's largest nickel industrial park, potentially affecting both RKEF and HPAL production lines. The Ministry of Energy and Mineral Resources stated it is monitoring the situation and does not anticipate widespread operational disruptions. China's July nickel pig iron imports totaled 641,000 tonnes, down 15.1% month-on-month and 23% year-on-year, mainly dragged by reduced shipments from Indonesia. Cumulative imports for January-July reached 5.685 million tonnes, with the year-on-year decline expanding to 9.8%. Indonesia accounted for approximately 96% of total imports.

In the spot nickel pig iron market, supply is trending looser as Indonesian shipments increase and previously delayed port cargoes are released. Trader quotations have shifted lower, dropping to 1,110 yuan per nickel unit (ex-hold, tax included). Meanwhile, steel mills are intensifying price pressures, with some mills' psychological purchase levels moving down to 1,085-1,090 yuan per nickel unit (ex-hold, tax included). Current restocking appetite remains subdued.

According to Mysteel, Indonesian nickel matte production has gradually declined since April, while MHP output saw a modest recovery from April to July before ticking down again in August. Although sulfur supply tightness continues to ease, other production disruptions have increased. China's cumulative imports of nickel wet-smelting intermediates for the first seven months totaled 952,000 tonnes, down 6.7% year-on-year.

The improvement in the oversupply picture is progressing slowly. Mysteel data shows Chinese refined nickel production at 27,867 tonnes in August, down 9.5% month-on-month and 24.3% year-on-year, continuing its decline since May. Inverted profit margins at the production end have prompted some small and medium-sized enterprises to scale back capacity, dragging the national average capacity utilization rate down to around 53%. Combined with weak demand and high visible inventories suppressing output, September production is expected to fall further. Indonesian refined nickel output also declined from elevated levels, totaling 6,500 tonnes in August.

Domestic pure nickel inventories are showing signs of stabilizing at high levels. In early September, SHFE nickel inventories edged down to below 112,000 tonnes, with warrant volumes gradually falling below 100,000 tonnes. However, the overall inventory remains at absolute highs, and it will take time for production cuts to transmit through to inventory drawdowns, though marginal improvements are visible. In early September, spot premiums for Jinchuan electrolytic nickel have modestly recovered from August lows as supply at the margin tightens. LME nickel inventories rose slightly to around 270,000 tonnes in early September, with registered warrants near 257,000 tonnes, also at elevated levels. The 0-3 cash discount has gradually narrowed to within $150 per tonne.

Overall demand remains somewhat weak. Mysteel data shows domestic 300-series stainless steel crude steel production at 1.9835 million tonnes in August, up 7.8% month-on-month and 14.1% year-on-year, driven by recovering mill order intake and resumed production from some maintenance-taken lines, though September scheduling has eased slightly. Social inventories of 300-series stainless steel rose modestly in August, currently around 670,000 tonnes, which is not low compared to historical seasonal levels. As of early September, the peak consumption season has yet to materialize, with market participants primarily making essential purchases and showing weak restocking intentions.

In the new energy sector, battery-grade nickel sulfate prices have gradually declined alongside nickel prices. Downstream companies remain predominantly committed to long-term contracts, with spot market inventory-building sentiment weak and acceptance of nickel salt prices low. At the end-use level, China's July ternary battery installations totaled 11,100 MWh, remaining weak overall and accounting for less than 15% of total power battery installations.

In summary, the external environment sees a high probability of a Federal Reserve rate hike in September, which may temporarily impact market risk appetite. On the supply-demand front, Indonesia's mid-year nickel ore quota additions are gradually being implemented, with the exact increment unverifiable but likely representing a relaxation compared to the first half. Ore prices in both Indonesia and the Philippines have declined, pulling production costs lower. Indonesia's August nickel pig iron output recovered, making supply somewhat loose with prices also declining, though the impact of water shortage-related production disruption reports appears limited. China's refined nickel production has been declining since May, with many small and medium-sized enterprises operating at a loss, but the transmission to an inventory inflection point will take time. SHFE nickel inventories are showing signs of stabilizing at high levels, Jinchuan nickel supply is tightening at the margin, and LME nickel inventories remain at absolute highs with the 0-3 cash discount narrowing slightly. Downstream 300-series stainless steel scheduling is moderate, ternary battery demand shows no notable improvement, and end-users' restocking willingness remains low. Overall, despite marginal improvements in pure nickel production and inventory metrics, falling ore prices and persistently weak demand continue to weigh heavily on nickel prices from above.