Abstract: In the medium to long term, after nickel prices return to the primary nickel pricing system, the outlook remains far from optimistic. After the end of the rainy season in the Philippines, the price center of domestic nickel pig iron (NPI) will continue to move lower, and the reasonable premium of nickel over NPI will fluctuate weakly accordingly.
Futures Daily reported on April 21: In the medium to long term, after nickel prices return to the primary nickel pricing system, the outlook remains far from optimistic. After the end of the rainy season in the Philippines, the price center of domestic nickel pig iron will continue to move lower, and the reasonable premium of nickel over NPI will fluctuate weakly accordingly.
Since the start of this year, nickel futures prices have fluctuated dramatically. In January, the uptrend inherited from 2020 accelerated further; in February, prices hit a record high of 149,350 yuan/ton since the listing of domestic nickel futures, before plunging nearly 30%. Recently, with the end of the rainy season in the Philippines, a major nickel exporter, and the gradual relaxation of its mining policies, medium- and long-term SHFE nickel is expected to maintain a weak and volatile trend.
Base metal prices pull back. The domestic economy got off to a good start in the first quarter. Recently, the National Bureau of Statistics, when responding to the continuous rise in commodity prices, stated: "China's economy is now deeply integrated into the global economy. Rising international commodity prices may affect prices in some domestic industries through different channels such as trade and investment. However, judging from the structural characteristics of the current PPI increase, it mainly affects some upstream industries, while the impact on downstream industries has not yet appeared." When judging the price trend of commodities for the whole year, supply and demand are the most fundamental factors determining prices. Judging from the current situation, under the general trend of economic recovery, the quality and capacity of supply are gradually improving; from the demand side, it is still in the process of recovery. Overall, domestic upstream product prices do not have the basis for long-term increases.
Affected by this, speculative demand in the market has cooled, and base metal prices have pulled back. However, domestic Q1 economic data were solid, while overseas U.S. Treasury yields fell, dragging the U.S. dollar index lower and supporting stronger commodity prices. Nevertheless, nickel prices remain under pressure due to falling costs.
Frequent bearish signals on the nickel supply side. Recently, the nickel market saw another major development: the Philippines, a major producer of laterite nickel ore, lifted its nine-year ban on new mines. In the short term, the impact of this event is relatively small, but in the medium to long term, combined with Tsingshan's investment plans in Indonesia and Nornickel's expansion plans, pressure on nickel ore supply has increased significantly. Although demand is strongly supported by the new energy vehicle industry, the base is still relatively small. Once production comes on stream, the oversupply of nickel ore is quite certain. Recently, other nonferrous metals have strengthened notably, while nickel has been the weakest. In the short term, as shipments of nickel ore from the Philippines recover gradually, nickel ore prices may decline. Meanwhile, Nornickel resumed production earlier than expected, and supply is gradually increasing.
In terms of nickel ore inventory at Chinese ports, as of April 16, 2021, nickel ore inventory at all ports in China increased for the first time after the Spring Festival, up 135,000 wet tons from April 9 to 5.618 million wet tons, equivalent to 44,000 tons of contained nickel metal, an increase of 1,000 nickel tons from April 9. Shipments from the Surigao mining area resumed at the beginning of the month. Philippine shipments in April may exceed 4 million wet tons. Port inventory increases arrived as expected, negotiations gradually became active, and nickel ore port inventory will again enter a phase of gradual accumulation. In terms of ore prices, last week Mysteel's mainstream medium- and high-grade nickel ore CIF prices were lowered. Domestic NPI plants replenished just-in-time inventory, and transaction prices fell. Currently, Ni:1.5% ore is at $65/wmt, and Ni:1.8% ore at $89/wmt. After the rainy season in the Philippines ends, overall nickel ore supply increases. Under a bearish sentiment, market buying interest is not high, and inquiry and procurement will remain mainly price-suppressive.
As for nickel pig iron, as of April 16, SMM data showed that the average price of high-grade nickel pig iron (8%-12%) was 1,085 yuan/nickel point (ex-works, including tax), and the average price of Indonesian NPI was 1,080 yuan/nickel point (arrival port, including tax). Last week, a South China steel plant purchased 10,000 tons of Indonesian NPI at 1,075 yuan/nickel point (arrival port, including tax). Apart from this transaction, mainstream steel plants showed poor purchasing interest, with almost no inquiries. In addition, last week, SS304 cold-rolled and hot-rolled futures prices were lowered. Weakened downstream expectations suppressed NPI prices. Moreover, upstream nickel ore prices continue to fall amid inverted NPI profit margins, and the cost support level for NPI has also moved down with ore prices. Coupled with the low ex-plant price of Indonesian NPI, market bullish sentiment is weak. Before the fundamentals change significantly, NPI prices still have room to fall further. This week, NPI prices are expected to trade in the range of 1,050-1,070 yuan/nickel point (ex-works, including tax).
The tight supply pattern of nickel sulfate is changing. In early March, Tsingshan Industry said it had successfully trial-produced matte nickel, which is expected to change the nickel supply pattern. Tsingshan Industry reached agreements with Huayou Cobalt and CNGR Advanced Material, planning to supply 60,000 tons and 40,000 tons of matte nickel to Huayou Cobalt and CNGR respectively within one year, with the agreements to take effect from October 2021. This news triggered violent fluctuations in the nickel market, with nickel prices correcting from above 140,000 yuan/ton to around 120,000 yuan/ton. In the nickel industry chain, nickel sulfate is currently priced at 33,500 yuan/ton, equivalent to about 152,200 yuan/ton of nickel metal (based on 22% nickel content), while domestic spot NPI is priced close to 111,000 yuan/ton, a spread of 41,200 yuan/ton, theoretically creating huge profit space for capacity conversion. This news also greatly advanced market expectations of improved nickel sulfate supply.
Previously, supply in the nickel market was mainly divided into two industry chains: one from NPI to stainless steel, and the other from intermediate products from hydrometallurgy / matte nickel / nickel briquette (powder) to nickel sulfate. In the past, these two chains were difficult to convert to each other. When the NPI-to-stainless steel chain was oversupplied, while the intermediate/matte nickel/nickel briquette (powder)-to-nickel sulfate chain was in tight supply, nickel prices tended to rise sharply. Over the past year or more, the rapid development of the global new energy vehicle industry has led to a substantial increase in demand for nickel sulfate. Therefore, although NPI capacity increased significantly, nickel prices still rose.
As a result, the market turned its attention to the abundantly supplied NPI. If NPI can be smelted into matte nickel and then used to produce nickel sulfate, and as long as the technology is feasible and has cost advantages, NPI is expected to open a channel into the new energy industry. Indonesia is launching several hydrometallurgical HPAL projects this year, which use the HPAL process to extract nickel sulfate via hydrometallurgy. However, HPAL projects require large investments, so new capacity is limited.
Tsingshan's successful trial production of matte nickel this time uses a process that adds converter equipment to the back end of the NPI production line to produce matte nickel. For Indonesian NPI production lines, which are still significantly expanding capacity, this is undoubtedly great news. It can both avoid future price competition in NPI and produce high-premium nickel sulfate to meet new energy vehicle demand. At the same time, it directly opens up the channel from NPI to the new energy industry. For the new energy industry, the previous problem of insufficient nickel supply is expected to be resolved in the future. For the nickel market, the two industry chains can now influence and convert into each other in the future, and the market's pricing logic has also changed. Therefore, the previous bullish logic collapsed, and nickel prices plummeted.
The question that needs to be considered in the future is where the support level for nickel prices is after the decline. We believe it can be preliminarily determined based on the cost from laterite nickel ore to nickel sulfate. According to the mature RKEF production process, the production cost of nickel metal in NPI production is $9,000-10,000 per ton of nickel metal. The production cost from NPI to matte nickel is between $1,000 and $1,500 per ton. Finally, there is the production cost from matte nickel to nickel sulfate. Currently, the production cost of nickel sulfate produced via laterite ore hydrometallurgical technology is about 20,000 yuan per ton. The cost of producing nickel sulfate from matte nickel is expected to be higher, especially in the early stage when fixed investment is included. Therefore, based on a rough estimate assuming high-grade NPI at 1,100 yuan/ton, and taking environmental protection costs into account, nickel futures prices may find certain cost support at 115,000-120,000 yuan/ton.
Taking the above factors into consideration, we believe that with the successful commissioning of Tsingshan's matte nickel project in Indonesia, nickel futures prices will gradually move in line with secondary nickel costs, and prices will face notable downward pressure. In the short term, increased imports of nickel briquettes have eased the tight supply of nickel sulfate raw materials, while the expected tight supply pattern of nickel sulfate in the new energy market is unlikely to change, providing some support for nickel prices.