Summary: At the 5th China International Nickel-Cobalt-Lithium Summit held in Shanghai on July 13-14, market participants believed that nickel prices are likely to remain under pressure for some time to come.
According to a Futures Daily report on July 15: Since the second quarter, as supply chains, logistics, and consumer demand gradually recovered from the impact of the pandemic, stainless steel production has returned to normal, and the fundamentals of primary nickel have improved. SHFE nickel prices have risen gradually but have recently entered a period of fluctuation. Considering the rapid commissioning of new production capacity in Indonesia in the third quarter, which will lead to a substantial increase in nickel pig iron (NPI) supply, coupled with a likely weak domestic consumption outlook this year, market participants at the 5th China International Nickel-Cobalt-Lithium Summit, held in Shanghai on July 13-14, believed that nickel prices are likely to remain under pressure for some time to come.
According to Liu Yuqiao, a senior analyst in the nickel industry, China's domestic primary nickel supply has fluctuated between 100,000 and 120,000 tonnes of nickel per month this year, showing a relatively stable performance. Structurally, Indonesian NPI continues to replace domestic Chinese NPI. Statistics show that in the first half of this year (January-June), Indonesia's cumulative nickel pig iron output reached 254,200 tonnes of nickel, while China's reached 249,900 tonnes. Indonesia has overtaken China to become the largest NPI producer.
"Particularly considering the dense schedule of new production lines being commissioned and ramped up in Indonesia in the third quarter, by the end of Q3, Indonesia's cumulative annual output is expected to reach 409,200 tonnes of nickel, while China's will be 372,900 tonnes. The output gap will widen, and the NPI supply landscape will change," Liu Yuqiao said.
According to a Futures Daily reporter, although the pandemic situation in Indonesia remains severe, the progress of NPI commissioning has not been significantly affected. Logistics from Indonesia to China for NPI shipments have remained normal, and the commissioning progress is slightly ahead of expectations. Under these circumstances, Liu Yuqiao predicts that new project commissioning will cause supply growth to outpace demand growth, and NPI will likely be in ample supply both this year and next year.
As for the consumption side, in his view, although battery consumption will gradually become one of the main drivers of nickel demand over the next 10-20 years, the main factor affecting China's primary nickel consumption at present remains stainless steel production. In fact, globally, nickel used in stainless steel production currently accounts for about 70% of total nickel consumption, while battery consumption accounts for only 7%.
"In the stainless steel sector, considering that domestic demand gradually recovered from the pandemic in the second quarter and restocking by midstream and downstream enterprises is basically complete, there are no new positive catalysts in the market. Combined with July being a traditional off-season, the overall oversupply pattern will become more pronounced," Liu Yuqiao said.
In fact, not only stainless steel, but also special steel, electroplating, and other industries will enter the off-season after July. Some special steel plants are expected to begin maintenance shutdowns in July, and the electroplating industry will also be affected by local environmental protection requirements and power curtailments during the summer peak. Under such circumstances, the market is generally pessimistic about July's outlook.
Considering that after the domestic pandemic, stainless steel downstream demand was supported by restocking demand and inventories declined from high levels, the domestic market has continued to experience oversupply after the restocking dividend faded. Meanwhile, NPI and electrolytic nickel have also seen slight inventory builds due to shrinking demand. With more Indonesian NPI and other foreign supplies expected to flow in, domestic nickel inventory pressure will further increase. Liu Yuqiao believes that China's primary nickel oversupply this year will be significantly larger than in previous years.
Under these conditions, he said that if domestic stainless steel plants maintain normal production and other nickel downstream demand recovers slowly, consumption in the fourth quarter will increase slightly compared with the third quarter. However, the sharp price drop in the fourth quarter of last year was related to the stainless steel industry's strong destocking intentions and production cuts aimed at improving profits. In such circumstances, stainless steel consumption has been somewhat weak this year. Although nickel prices are already at relatively low levels, the ample supply of raw material NPI means that mainstream stainless steel producers may not cut production drastically, and raw material oversupply will continue to weigh on nickel prices.