The bargaining power of overseas nickel mines is expected to increase due to the suspension of production and the addition of rainy season or more tight supply in overseas nickel mines.

SMM: today, local time, Nickel Asia, the largest nickel ore producer and exporter in the Philippines, said that it had suspended the operation of one of its mines after the current outbreak of novel coronavirus.

As a containment measure, work at, Nickel Asia's Hinatuan mine, which accounts for 11 per cent of Asia Nickel's total ore sales, was suspended on Tuesday and will last until November 10. Subsequently, Shanghai nickel futures surged more than 5% to 125280 yuan per ton, the highest since December 18 last year.

The Philippines is a major importer of nickel ore in China. Citic Securities warned that in addition to the impact of the shutdown, October to March is the rainy season in the Philippines. With the approach of the rainy season, the supply of nickel ore will decline significantly, while domestic inventories are currently at an all-time low. Nickel mine tension will deepen.

It also mentioned that the recent steady growth of Ferro-nickel production in Indonesia may have an impact on domestic supply; since then, with the advent of the off-season of stainless steel consumption, demand will weaken, but the decline in demand may be limited due to the post-real estate cycle and the chemical cycle; due to the decline in stainless steel production and the impact of Nickel-Iron in Indonesia, domestic Ferro-nickel production will decline.

Citong Securities also noted that after Musk announced on Tesla Battery Day that "will maximize the use of nickel and reduce cobalt to zero", Tesla is expected to become a weather vane for the industry, leading the process of high nickelization of cathode materials, and nickel will be the most promising battery metal in the next decade. The increment of nickel used in batteries has become the main force, and the proportion of nickel used in batteries is expected to increase significantly from 3% to 37% in 2030.

Prior to this, there are two main factors supporting the nickel price, one is the upstream nickel mine price support, on the whole, the nickel mine market negotiable supply is still relatively scarce, the negotiation price remains high. The other is the optimistic expectation of the market for demand, as the sales performance of new energy vehicles is good, the market expectations for demand continue to rise.

According to the research of CITIC Securities, at present, nickel mines are mainly concentrated in the hands of large domestic nickel-iron enterprises. With the tension of nickel mines, the bargaining power of head nickel-iron enterprises will be significantly enhanced, and the game between stainless steel and nickel-iron enterprises will be more intense.

Specific to the investment target, A shares related to nickel bid as follows, including Shengtun Mining, Western Mining, Hezhong Science and Technology, Qingdao medium range, Pengxin Resources.

Among them, according to Li Shuaihua, an analyst with Caitong Securities Nonferrous team, with the commissioning of Shengtun Mining in Indonesia's nickel production line, the production line may contribute more than 30% of Shengtun Mining's profits next year, and the target is expected to play a leading role in the industry.

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