China domestic NPI supply to exceed demand in near term

SHANGHAI, Aug 7 (SMM) – There is a sharp rise in nickel prices recently due to capital factors as the short term fundamentals of  nickel pig iron (NPI) and stainless steel exceeded expectations, boosting the spot prices of related products. On the other hand, Indonesian NPI resources are eroding the share of the domestic NPI market. The SMM nickel team gives a near term outlook on the NPI market.

#300 stainless steel output in China and Indonesia reached new high, benefiting NPI short term fundamentals

Indonesian stainless steel output in July 2020 stood at 240,000 mt, up 20% month on month, on pile with the record high in July 2019, SMM survey showed. As Indonesian NPI producers give priority to local stainless steel mills for their NPI material, an increase of Indonesian stainless steel output means more local consumption of NPI and lesser transportation to China.

On the other hand, square billet output of accounted for half of the total output in July, higher than the same period last year. The product, unfettered by China’s antidumping policy, is likely to be exported to China, increasing domestic supply of stainless steel wires or extrusions.

Chart 1: Chinese #300 stainless steel output (10,000 mt)

Chart 2: Indonesian stainless steel output (10,000 mt)

Increased Indonesian NPI project commissioning, lifting NPI imports

The commissioning of a large number of NPI projects in Indonesia is likely to increase China’s NPI imports. Although the balance of supply and demand for nickel pig iron in the third quarter is better than expectations, it is important to note that imports from furnaces that were commissioned in Q2 will be delayed. Despite the small increase in Indonesian stainless steel production in H2, the increase in NPI output will exceed local NPI consumption.

Some of the projects have been deferred to next year. Weda Bay and PT Virtue Dragon Nickel Industry (VDNI) Phase II are the two key projects that are likely to be put into production as scheduled.

NPI projects to be put into production in August 2020 are reflected in the following charts:

Table 1: NPI production projects in Indonesia (Updated Aug 2020)

The following shows the theoretical NPI exports to China, calculated by subtracting consumption by local steel mills from Indonesia's NPI production, as well as the actual import volume (data for H2 2020 are based on estimates) :

1. The volume of imported NPI was largely consistent with the theoretical volume in 2020.

2. The volume of imported NPI was lower than the theoretical volume most of 2019 as some enterprises restocked for new stainless steel capacity in 2020. The gap between theoretical and actual volume was narrower after the commissioning of new capacity in early 2020. Chinese NPI imports are expected to be affected more significantly by the commissioning progress in Indonesia.

Chart 3: Comparison and outlook of theoretical and actual volume of Indonesian NPI exports to China

Domestic NPI supply to exceed demand in near term

A surplus in domestic NPI is likely to occur in the near future, according to Rachel Liu, head of Nickel department, SMM. Domestic monthly NPI output will stand between 37,000 mt and 38,000 mt (in nickel content), while monthly NPI imports from Indonesia will increase from 25,000 mt to 35,000 mt, increasing domestic NPI supply to over 70,000 mt (in nickel content).

China’s high-grade NPI consumption by stainless steel stood at 65,000 mt in July (in nickel content). New projects such as Linyi Investment Development Group and Jiangsu Zhongtuo will be put into production in the near term, but consumption is likely to be lower than supply.

Table 2: Chinese planned stainless steel expansion projects (updated August 2020)

SHFE nickel prices are expected to fall to around 105,000 yuan/mt due to potential lower raw material prices and stainless steel fundamentals. Domestic NPI prices are likely to trend lower in Q4 if stainless steel demand fails to improve noticeably.

If domestic demand for stainless steel tops expectations, nickel prices are expected to exceed 110,000 yuan/mt The focus will be on buying on the dips.