Morning Insight: July 17, 2026

Morning Insight:July 17, 2026 LinlinGaoCertification：Z0002332gaolinlin@gtht.comYu Chen WuCertification：Z0024232wuyuchen@gtht.com Main Body Naphtha:Asian naphtha prices rallied before retreating. In the nearterm, tighter-than-expected supply and recovering demand have pushednaphtha crack spreads to historical highs. However, elevated naphthapremiums have begun to trigger downstream negative feedback. SeveralNortheast Asian ethylene crackers have canceled their August feedstocktenders, indicating that demand destruction is starting to materialize.On the supply side, the Strait of Hormuz remains closed, keeping Julynaphtha exports largely stagnant. As of mid-July, cumulative exports haveremained below 1.5 million tonnes, well short of the anticipated reboundin downstream demand. At the same time,Kuwait has released its Augustnaphtha loading tender at prices significantly lower than the previousday's levels. Against a backdrop of demand contraction, this additionalsupply has established a new pricing benchmark for the market. Looking ahead, Northeast Asia is expected to begin phasing out part ofits ethylene cracking capacity from September onward. With both supplyand demand set to decline, the current period may represent the strongestmarket conditions for naphtha in the second half of 2026. From a medium-to long-term perspective, however, market fundamentals are graduallyweakening. While downside supply constraints remain supportive, demand-side pressure is likely to limit further upside in the near term. The keyfocus will be the extent to which downstream negative feedback continuesto unfold. Nickel:The market narrative has shifted following a reassessment of the ore supply outlook. Combined with expectations of production curtailmentsand easing inventory pressure, nickel prices now have room for a short-term valuation recovery from depressedlevels. Over the longer term,however, the key question is whether the market will continue to tradethe Indonesian quota story or eventually revert to pricing the sector'sunderlying oversupply. The scale of any additional Indonesian miningquotas will therefore remain the critical variable. Last Friday, Indonesia's Ministry of Energy and Mineral Resources (ESDM)denied reports of a broad "Beta-style" increase in nickel mining quotas,indicating instead that any additional quotas would likely be grantedonly as exceptions to smelters facing feedstock shortages. This has easedmarket concerns that nickel would quickly return to an oversuppliedenvironment and has provided support for ore valuations at current pricelevels. As highlighted in our mid-year report, if Indonesia approves additionalquotas of less than 20%, the market is unlikely to trade a meaningfuloversupply in nickel units across the mining and smelting chain.Specifically: •If additional quotas are around 15%, nickel prices could see a modestrecovery. •If the increase is below 10%, nickel prices could stage a morepronounced rebound. Following the latest policy comments, market expectations have shiftedfrom an assumption of broad policy easing to one of tightly controlledquota expansion. Meanwhile, market sources suggest that industrial park operators haveinstructed certain NPI producers to reduce output in order to secureelectricity supply for new electrolytic aluminum projects. Indonesia'spower constraints have been a major topic since May and June. We believethat mismatches between grid connections and new project commissioningcould leave the K Park industrial zone facing a peak power shortfall ofaround 15% in the second half of the year. If production cuts continue across both pyrometallurgical and hydrometallurgical operations, theindustry's effective surplus could shrink substantially even withoutconsidering quota restrictions, providing further support for nickelprices. Although the temporary reopening of the Strait of Hormuz allowedhydrometallurgical producers to replenish sulfur inventories, reducingspeculative enthusiasm surrounding both sulfur availability and miningquotas, renewed uncertainty over the Strait has once again attractedspeculative interest. From a fundamental perspective, the fading of macro and speculativedrivers previously pushed nickel prices sharply lower. Based on a sulfurprice of US$1,150/tonne and July ore price adjustments, we estimatecurrent cash production costs at approximatelyUS$17,000/tonne forpyrometallurgical production and US$16,500/tonne for hydrometallurgicalproduction. In the short term, pyrometallurgical costs remain the primaryvaluation anchor. Over the longer term, if hydrometallurgical capacityexpansion proceedswith sufficient quota support, pricing could graduallyshift toward hydrometallurgical production costs from 2027 onward.As nickel prices previously fell below estimated cash costs, the markethad arguably priced in a much steeper decline in ore prices than nowappears likely. The latest signals from Indonesia have eased fears of acollapse in ore fundam