Abstract: The average annual nickel prices from 2021 to 2025 are expected to be USD 14,000/t, 14,300/t, 13,900/t, 13,800/t, and 13,500/t, respectively.
Because nickel consumption in stainless steel accounts for 61% of total nickel metal consumption, and metal alloys account for 22%, coupled with the rapid growth of China's stainless steel industry and the development of ternary battery materials, nickel metal market prices fluctuated upward from 2016 to early 2020. In particular, after Indonesia's ore export ban in 2019, expectations of a possible mismatch between supply and demand triggered a "rogue nickel" market, with the price peak once exceeding USD 18,000/t. Later, due to the global COVID-19 pandemic, along with a broad decline in commodity prices, nickel prices fell below the 50th percentile cost line of nickel sulfide production to USD 10,915/t (according to statistics on major global nickel sulfide producers and the price-cost percentile method, the 40th, 60th, and 80th percentile lines for global producing nickel sulfide mines are USD 9,100/t, USD 11,100/t, and USD 12,600/t, respectively).
It is expected that from 2020 to 2025, nickel prices will continue a strong trend driven by China's stainless steel and ternary battery materials, with overall positive momentum, but the price peak will not exceed the previous high of USD 18,000/t. Affected by the global spread of COVID-19, nickel prices in 2020 are expected to reach a basic balance worldwide, and the average annual nickel price may be near the 80th percentile line of global nickel production, i.e., USD 12,600/t. The average annual nickel prices from 2021 to 2025 are expected to be USD 14,000/t, 14,300/t, 13,900/t, 13,800/t, and 13,500/t, respectively.
In 2019, China's nickel metal supply was about 1.48 million tons. In terms of China's traditional sulfide nickel resource supply, China's nickel resource supply consists of two parts: primary nickel supply, accounting for about 72.9% of the total; and secondary nickel from the recycled market, accounting for about 27.1%, with output of about 100,000 tons when nickel prices are high. In recent years, with the use of laterite nickel ore in stainless steel, the proportion of secondary nickel in market supply has fallen below 5%.
According to relevant data, in 2019, China's primary nickel ore output was 755,000-780,000 tons, equivalent to 150,000-155,000 tons of nickel metal.
According to customs statistics, in 2019 China imported 56.132 million tons of nickel ore and concentrates. Based on laterite nickel ore containing 1.75% nickel, sulfide nickel ore containing 4.5% nickel, and laterite ore accounting for 70% of imported nickel ore, the average nickel content of imported nickel ore is calculated at 2.6%, with moisture content of 5%-10%. Based on a metal recovery rate of 90%-95%, this converts to 850,000-1.2 million tons of nickel metal, with an average of 1.025 million tons (theoretical value; because laterite ore accounts for a relatively high proportion, the actual value may be closer to about 900,000 tons). In 2019, China imported 194,000 tons of refined nickel and alloys. Total imported nickel metal from both was about 1.22 million tons. In 2019, China's primary nickel metal supply was about 1.48 million tons. Meanwhile, according to industry survey data, China's domestic secondary nickel output in equivalent nickel metal was about 100,000 tons in 2019.
Therefore, a more accurate estimate of China's total nickel metal supply in 2019 is about 1.48 million tons. Among this, sulfide nickel ore supply was 345,000-350,000 tons (including domestic nickel of 150,000-155,000 tons and imported nickel of 194,000 tons), laterite nickel ore supply was about 1.025 million tons, and secondary nickel resources were about 100,000 tons.
In 2019, China's nickel metal demand was 1.55-1.56 million tons. From the downstream demand side, China's crude stainless steel output in 2019 was 29.40 million tons, an increase of 2.6931 million tons year-on-year, up 10.08%.
Among this, Cr-Ni steel (300 series) output was 13.494 million tons, an increase of 673,400 tons year-on-year, up 5.25%, accounting for 45.9%, down 2.11 percentage points year-on-year; Cr steel (400 series) output was 5.5026 million tons, an increase of 35,700 tons year-on-year, up 0.65%, accounting for 18.72%, down 1.75 percentage points year-on-year; Cr-Mn steel (200 series, including some products not meeting national standards) output was 10.2241 million tons, an increase of 1.9655 million tons year-on-year, up 23.80%, accounting for 34.78%, up 3.85 percentage points year-on-year.
Calculated on the basis of an average nickel content of 9% in 300 series stainless steel, nickel metal demand was more than 1.215 million tons. It is estimated that nickel demand in China's traditional industries exceeded 1.52 million tons.
Due to the extremely hot development of China's domestic ternary battery industry in recent years, demand for nickel from new battery materials has grown rapidly. According to statistics, from January to November 2019, China's total power battery output reached 79.2 GWh, up 29.3% year-on-year, of which ternary battery cumulative capacity was 50.3 GWh, accounting for 63.5% of total output, up 46.2% year-on-year. Converted according to metal ratios in ternary batteries, nickel metal demand from ternary batteries in 2019 was 35,000-40,000 tons.
In summary, China's economic development in 2019 required total nickel metal demand of 1.55-1.56 million tons.
New stainless steel output is the main cause of the current nickel supply gap. From the perspective of supply-demand balance, China still had a nickel metal supply gap of at least 70,000-80,000 tons in 2019 (the actual figure may be around 170,000 tons). Based on an average incremental demand of 75,000 tons, the stainless steel industry contributed about 65,000 tons of incremental demand, and other industries contributed about 10,000 tons.
This shows that China should strengthen the recovery and utilization of nickel metal resources, fully recover offcuts from stainless steel production and processing, and separately recover waste stainless steel products. The harmless disposal of waste slag and waste acid in stainless steel production will receive high attention. Green manufacturing in the stainless steel industry will become an effective way to reuse nickel metal resources and can effectively reduce dependence on foreign nickel.
In addition, the share of high-nickel ternary materials in installed capacity in China has increased significantly, indicating that the trend toward high-nickel ternary power batteries is irreversible. Strong demand for ternary battery materials in China will become the main driver of new nickel demand after 2020. As China's stainless steel capacity becomes oversupplied, the contribution of stainless steel to new nickel demand will gradually decrease.
The key for China to gain a stronger say in the nickel market is to make good use of financial market tools. According to statistics, in 2019, China imported 188,000 tonnes of refined nickel and exported 36,600 tonnes, resulting in net refined nickel imports of 151,400 tonnes for the year. It is understood that the vast majority of China's refined nickel exports, totaling 34,000 tonnes, were logistics goods under special customs supervision zones, mainly used for delivery against London Metal Exchange (LME) warehouses in Asia, while the total used for processing with supplied materials, processing with imported materials, and general trade was less than 2,400 tonnes.
In the end-use market for nickel, the steel industry accounts for an absolute majority of nickel consumption. The development and demand of the steel industry, especially the stainless steel industry, will directly determine the trend of nickel prices. In terms of stainless steel consumption, China's apparent stainless steel consumption in 2018 was 22.095 million tonnes, a year-on-year increase of 1.2146 million tonnes, up 5.82%. The strong demand for stainless steel stimulated production, which in turn drove strong demand for nickel, pushing nickel prices to rise along with steel prices and making nickel the most eye-catching nonferrous base metal after 2018. In this sense, the application pattern of nickel determines that nickel prices are closely and positively correlated with the steel industry, and to a certain extent, the level and market changes of stainless steel prices directly determine the ups and downs of nickel prices.
After the listing of stainless steel futures, the impact of the futures market on stainless steel market prices will become an important factor determining market prices on top of supply-demand fundamentals. Nickel accounts for a relatively high proportion of stainless steel production costs, which will create price differences across different markets and product varieties, offering opportunities for financial arbitrage. Meanwhile, LME nickel and SHFE nickel respectively represent global and Chinese market demand for nickel. The inventory differences between the two and the lack of synchronization in market expectations also create opportunities for market operations. If the three are applied in combination, the speculative arbitrage opportunities among them will increase.
Judging from the nickel price movements in the Shanghai Futures Exchange and the London Metal Exchange since 2019, the Shanghai Futures Exchange price outperformed the LME in more than half of the trading sessions. This fully shows that, driven by China's strong demand for nickel resources, capital is keen on nickel futures trading in China. At the same time, because China's futures market started relatively late and is less complete than mature overseas exchanges, the probability of financial speculation is higher. The launch of stainless steel futures may with high probability stimulate financial capital speculation and thereby affect nickel price trends.
Therefore, making good use of financial market tools is the key to China's future competition for a voice in the nickel metal market.
China's nickel raw material imports face extremely high source concentration risk. According to customs statistics and related surveys, since 2010, China's imports of nickel ore from Indonesia have always accounted for more than 70% of Indonesia's total nickel ore exports, while imports from the Philippines have accounted for more than 90% of the latter's total exports. Data released by the General Administration of Customs of China show that in 2019, China imported a total of 56.1294 million tonnes (physical quantity) of nickel ores and concentrates, of which 23.9040 million tonnes came from Indonesia and 29.9377 million tonnes from the Philippines. The total volume of nickel ores and concentrates imported from these two countries accounted for 95.9% of China's total imports of this resource.
In terms of ferronickel imports, China imported a total of 1.9497 million tonnes of ferronickel in 2019, of which 1.3577 million tonnes came from Indonesia, with that single country accounting for 69.6%.
The above data show that China's nickel resources are extremely concentrated in terms of source countries, with nickel resource imports basically dependent on the Philippines and Indonesia.
China will still have a supply-demand gap for nickel metal from 2020 to 2025. China's almost crazy investment in ternary battery materials in recent years has driven market demand for battery material resources. The ratio of nickel-cobalt-manganese acid lithium in ternary materials, combined with the relatively low price and cost of nickel compared with cobalt, has made cobalt reduction a trend, and nickel has gradually become a favorite in the battery field.
According to forecasts from major overseas industry institutions, global nickel consumption is expected to increase by 640,000 tonnes by 2025. Among this, nickel consumption for batteries will rise from 58,000 tonnes in 2018 to 300,000 tonnes by 2023, with the increase in battery nickel consumption accounting for about 40% of the total increase in new nickel demand. By 2030, of the 1.1 million tonnes of new nickel demand worldwide, about 500,000 tonnes will come from electric vehicles, power batteries and energy storage equipment, raising the proportion to over 45%. By then, the increment from new-energy batteries will surpass that from stainless steel and become the main contributor to the growth in nickel consumption.
China's technological breakthroughs in using laterite nickel ore in stainless steel production and its development in the new-energy battery sector in recent years have comprehensively driven the entire production chain covering laterite nickel ore and traditional nickel sulfide ore as well as metallic nickel and nickel salts. Driven by the China factor, the growth of global stainless steel output and the application of ternary power batteries continue to push nickel demand upward. Since 2016, the global nickel market has had continuous supply gaps and inventories have declined significantly.
Considering the impact of the COVID-19 pandemic on the global economy, China's tight nickel metal supply situation in 2020 may ease somewhat due to lower stainless steel output, gradually moving closer to a balance between supply and demand, but the long-term trend remains unchanged. It is estimated that by 2025, China's nickel metal supply gap will still be 100,000 to 200,000 tonnes.