The pace of LME nickel inventory draws has accelerated through May, with an average of 6,200 tonnes per day in cancellations. The trend is geographically concentrated: Asian warehouses (South Korea, Taiwan, Singapore) have seen the largest reductions, accounting for 68% of total inventory declines. European and US warehouse stocks have been relatively stable, reflecting a preference for Asian delivery given proximity to consumer markets.
The inventory drawdown is consistent with strong stainless steel production in China, where 300-series stainless output reached a record 1.85 million tonnes in May, up 5.2% year-on-year. Nickel consumption in stainless applications — which accounts for 65% of total nickel demand — has been supported by infrastructure stimulus and machinery exports.
The warrant structure on LME is also shifting. The concentration of warrants held by a single entity has declined from 45% in March to 32% in early June, reducing the risk of a short-squeeze event. However, the remaining stock remains thinly distributed, with 55% of live warrants held in just three warehouse locations, creating localized availability risks.
Despite the inventory decline, LME nickel remains in a net contango structure for deferred contracts beyond three months, with the cash-15 month spread at $240/mt contango. This signals that while near-term physical availability is tightening, the market does not foresee a structural deficit persisting beyond 12 months.
The inventory drawdown supports current price levels but does not point to a structural deficit. Buyers with exposure to stainless steel production costs should monitor LME warehouse flows on a weekly basis. If Asian inventories continue to decline at the current pace, expect LME nickel to test the $20,000-21,000/mt range in Q3 2026.