Abstract: After nickel prices peaked in February and then fell sharply with a major correction, they have continued to fluctuate within a consolidation range of 118,000–125,000 yuan/ton. In April, prices briefly broke above the range in an attempt to move higher, but momentum waned, and prices eventually returned to range-bound trading. Going forward, time will continue to be traded for space, and the possibility of an upward gap-fill remains.
Abstract: After nickel prices peaked in February and then fell sharply with a major correction, they have continued to fluctuate within a consolidation range of 118,000–125,000 yuan/ton. In April, prices briefly broke above the range in an attempt to move higher, but momentum waned, and prices eventually returned to range-bound trading. Going forward, time will continue to be traded for space, and the possibility of an upward gap-fill remains.
Main text: After nickel prices peaked in February and then fell sharply with a major correction, they have continued to fluctuate within a consolidation range of 118,000–125,000 yuan/ton. In April, prices briefly broke above the range in an attempt to move higher, but momentum waned, and prices eventually returned to range-bound trading.
I. Changes in macro sentiment
From a macro perspective, bullish and bearish factors are intertwined. The US economic recovery is better than that of other countries, the dollar is strong, and base metals are under pressure. However, the US infrastructure stimulus plan is positive for industrial commodity demand, especially copper and steel demand. Moreover, the overall supply-demand recovery in major overseas economies still has room, so the overall supportive effect on nonferrous metals remains.
Domestic economic data overall remain relatively good. However, China was the first country to show recovery willingness after the pandemic shock, and growth accelerated from the second quarter of last year. Therefore, from a year-on-year trend perspective, China's economic recovery pace is likely to be high at first and then slow down, which has already been reflected by the stock market. In addition, overseas liquidity glut has caused imported inflationary pressure, leading to excessively fast rebound in raw material prices of nonferrous metals since last year, putting pressure on downstream enterprises. Domestic PPI has risen rapidly, also attracting widespread attention from all sectors. End-users are becoming cautious in stocking materials, and negative feedback to the upstream side is possible. Therefore, industrial products face phased adjustment pressure.
Over a longer period, the macro-driven co-movement of the entire nonferrous metals sector has weakened, and differentiation has gradually emerged due to supply-demand factors. However, changes in expectations regarding the pace of economic recovery and liquidity withdrawal will continue to affect the overall moves of nonferrous metals.
II. Recent changes in key supply-demand themes
1. Nickel's structural supply contradiction expectations are gradually changing
The rapid development of new energy batteries has provided strong momentum for sharp nickel price fluctuations, especially the marginal premium driven by new energy factors in the LME market was once significant. Since the beginning of this year, demand growth expectations from the development of new energy vehicles have remained positive, but some changes have also appeared.
Nickel prices fell sharply as the adjustment of technology routes brought forward the expectation of an improved supply-demand balance for nickel sulfate. In March, because the economics of nickel briquette dissolution improved substantially with the decline in nickel prices, demand for nickel briquette dissolution picked up, nickel briquettes maintained a premium over the exchange price, and nickel found support and stabilized. Nickel sulfate, however, saw prices fall as output and supply channels increased. Nickel briquettes and nickel sulfate are moving in opposite directions; dissolution profits still exist but have narrowed significantly compared with the previous period, and overall this still provides some support for nickel prices. Meanwhile, demand for lithium iron phosphate is relatively better. Earlier, because nickel and cobalt prices surged, ternary precursor prices rose, indirectly boosting demand for lithium iron phosphate. Moreover, with the implementation of infrastructure measures, the pursuit of driving range for power batteries is also marginally weakening, so lithium iron phosphate will keep its place in the new energy battery sector, and may even be favored at certain stages due to its obvious comparative economics. According to enterprise feedback, the penetration rate of new energy vehicles in 2021 is expected to be 8–9%, roughly 2 million vehicles. At present, 40% of passenger vehicles use lithium iron phosphate batteries and 60% use ternary batteries. In 2021, lithium iron phosphate is expected to capture a large market share in the battery industry. Due to its cost advantage, lithium iron phosphate is developing rapidly. Iron phosphate and ternary batteries are trending toward a 50/50 split, and in the future, batteries will operate with both iron phosphate and ternary routes coexisting.
2. Ore prices have seen seasonal declines; nickel pig iron also faces competition from Indonesian NPI
Nickel ore supply is highly dependent on the Philippines. As the Philippine rainy season passes, shipments are gradually recovering, nickel ore quotes have corrected, and CIF prices for mainstream grades have all been lowered. Recently, domestic nickel pig iron plants have been restocking for rigid demand, and transaction prices have fallen. Currently, Ni:0.9% high-alumina ore is $43/wmt, Ni:0.9% low-alumina ore is $54/wmt; Ni:1.5% ore is $67/wmt; and Ni:1.8% ore is $95/wmt. Some Philippine mines have started tenders for May shipments, and FOB prices for medium-grade nickel ore have fallen slightly. Most nickel mines remain wait-and-see, and are expected to officially quote in mid-to-late month. Sea freight has pulled back slightly recently, and after traders' overall procurement costs fell, external quotes declined month-on-month to around $67/wmt for Ni:1.5% ore. Domestic nickel pig iron plants have low nickel ore inventories. After recent market quotes fell, plants' spot profits have recovered. The market is mainly restocking for rigid demand, and mainstream medium-grade nickel ore transaction prices fell by $3–4/wmt month-on-month.
Domestic nickel pig iron prices have recently been firmer than electrolytic nickel. Because high nickel ore prices earlier caused losses for domestic NPI producers, the recent decline in ore prices has led to profit recovery for domestic NPI, though margins remain relatively depressed. NPI materials are expected to continue showing a lagging decline, with limited room for active downward moves. Meanwhile, Indonesian NPI capacity is still being released, production is increasing, and imports to China are also growing. Indonesian NPI has a competitive advantage and will continue to limit the room for domestic NPI profit recovery.
3. Electrolytic nickel
Spot demand for electrolytic nickel is differentiated. In the stainless steel production chain, nickel pig iron is clearly more economical, nickel plates' comparative advantage remains weak, usage is limited to a low level, and demand for nickel plates is constrained. Demand for nickel briquettes remains good due to dissolution to extract nickel sulfate, but with the import window for nickel briquettes opening and bonded-zone nickel briquettes transferring into China, the high premium for nickel briquettes is narrowing. Domestic electrolytic nickel production in the first quarter was generally in a contraction state, so pressure from that side is not significant. Overall, domestic electrolytic nickel inventories and production demand are not particularly bearish.
III. Changes in demand
1. Stainless steel inventories are changing
The pace of stainless steel destocking continues. Spot demand is acceptable, but pre-sold stainless steel order volumes are mediocre. April production scheduling overall is slightly lower than March, but still at a high level. Arrivals are expected to increase in mid-April, and the pace of destocking and demand changes need to be monitored.
In addition, at the end of last year, there was a rush to export due to concerns about South Korea's anti-dumping measures against domestic stainless steel; this factor may partially affect demand later this year. Since the beginning of this year, anti-dumping news has also emerged intermittently, and domestic demand will remain the mainstay. Overall domestic demand expectations for stainless steel remain relatively good.
2. New Energy Vehicle Performance
In March, new energy vehicle production and sales completed 216,000 units and 226,000 units respectively, up 74.19% and 105.45% month-on-month, and up 68.75% and 79.37% year-on-year, continuing to set new historical records for the month. Among them, battery electric vehicle production and sales completed 182,000 units and 190,000 units, up 2.6 times and 2.5 times year-on-year respectively; plug-in hybrid vehicle production and sales completed 34,000 units and 36,000 units, up 2 times and 1.9 times year-on-year respectively; fuel cell vehicle production and sales completed 45 units and 59 units, up 18.4% and 63.9% year-on-year respectively. By segment, battery electric vehicles and plug-in hybrid vehicles also continued to set new historical monthly records. In the first quarter, new energy vehicle production and sales completed 533,000 units and 515,000 units, up 3.2 times and 2.8 times year-on-year respectively. Among them, battery electric vehicle production and sales completed 455,000 units and 433,000 units, up 3.6 times and 3.1 times year-on-year respectively; plug-in hybrid vehicle production and sales completed 78,000 units and 82,000 units, both up 1.8 times year-on-year; fuel cell vehicle production and sales completed 104 units and 150 units, down 43.2% and 27.5% year-on-year respectively.
Power battery demand is expected to remain in a sustained boom. However, excessively high prices are not conducive to the broader direction of new energy vehicles competing with gasoline-powered vehicles. Going forward, new energy vehicle makers will continue to focus on cost control and technology route development, while the enrichment and diversification of raw material substitution will also bring adjustments. As for nickel sulfate demand, overall demand growth is promising, but prices remain influenced by supply and demand. In mid-to-late April, Madagascar's nickel briquette production gradually resumed, while Indonesian HPAL projects will also gradually add supply, compressing the high profits of nickel sulfate as supply improves. The convergence of nickel sulfate with nickel pig iron and electrolytic nickel will continue.
IV. Future Outlook and Staged Trading Strategies
Nickel price movements are significantly affected by macroeconomic resonance. The high growth of new energy raises bottom support, but excessively rapid price increases during phase transitions can easily trigger adverse effects on spot demand. At present, the balancing process from high profits down to low-profit and loss-making segments is expected to continue in a slow and gradual manner. Nickel pig iron's fluctuation range is constrained by the downward room for nickel ore, while domestic nickel pig iron has some resilience because overall profitability is poor. This provides certain bottom-line support for nickel prices. The basis for electrolytic nickel is weak, and after the electrolytic nickel futures price adjusts, spot traders may still be attracted to buy spot at lows. Meanwhile, nickel briquette demand will persist given the substantive improvement in nickel sulfate supply and the existence of dissolution margins, which will continue to support electrolytic nickel.
Nickel prices are more likely to remain range-bound, with continued fluctuations mainly between 118,000 and 125,000 yuan. Slightly tightening domestic capital sentiment at the margin is putting short-term pressure on nickel. However, the staged adjustment allows wait-and-see and deferred demand to find a release point. Going forward, using time to exchange for space continues, and there is still a possibility of an upward gap fill. This gap-filling round is unlikely to be accomplished in one go; it will require further coordinated upward movement in the broader non-ferrous metals complex. With room for overseas recovery, the positive spillover to non-ferrous metals remains worth expecting.
Factors that could trigger further unfavorable nickel prices include: macro sentiment, sustained strength in the U.S. dollar index, significant RMB depreciation; the pace of implementation of the U.S. $1.9 trillion infrastructure plan, strengthening expectations of Fed liquidity tightening; further weakening in stainless steel production schedules and declining demand; overseas nickel capacity release, output and exports exceeding expectations; foreign new energy vehicle battery demand falling short of expectations; and intermediate product supply improving more than expected. If such negative expectations do not appear collectively, the impact on nickel prices will be limited, but a multi-factor resonance would be unfavorable for the trend.