Tsingshan’s announcement severely impacted nickel futures prices

SHANGHAI, Mar 9 (SMM)—Tsingshan's announcement of the supply of high-grade nickel matte has severely impacted the nickel market, but the scalable production will be limited by the process feasibility, raw material cost effectiveness, and negotiation power over pricing of nickel industry chain.

Producing high-grade nickel matte from laterite nickel ore is not a new process, which has been applied by some smelting enterprises. However, only Sorowako of Vale Indonesia is currently producing using this process.

Production process:

Adding sulphur-containing materials (pyrite, gypsum) to laterite nickel ore — blast furnace blowing at 1500-1600℃ (or electric arc furnace smelting) — low nickel matte —converter blowing — high-grade nickel matte

Or

Laterite nickel ore — RKEF process — high-grade NPI — adding sulphur-containing material and blowing in a converter — nickel matte

Cost:

Negotiation power over pricing:

As the supply of spot nickel sulphate was in shortage before, new energy users passively accepted high-priced raw materials. However, the high-grade nickel matte broke the original supply and demand pattern. If the mass production of high-grade nickel matte leads to raw material surplus, the pricing power will return to precursor factories which use nickel sulphate.

Namely, the decline in nickel prices will drag down the price of nickel briquettes with high premiums. Without regard to the demand support from stainless steel for Indonesia's NPI, the price of nickel briquettes must at least fall below the cost price of Indonesia's high-grade nickel matte to regain the share in nickel sulphate raw materials. The cost of Tsingshan NPI - nickel sulphate can be used as the theoretical lower margin of nickel price, and the estimated cost of high-grade nickel matte - nickel sulphate at Vale can be used as the actual lower margin of nickel price. (The price difference reflects the cost control of Tsingshan NPI - nickel sulphate).

Theoretical lower margin of nickel price: 22,600/22%-3,000=99,727 yuan/mt

Actual lower margin of actual nickel price: 24,200/22%-3,000=107,000 yuan/mt (Processing cost of autodissolving nickel briquette in ternary precursor plant stands at 3,000 yuan)

The above values are only estimation. According to those who have tested the process in the industry, the actual commissioning and sales process also need to take into account the cost of the new converter, the low recovery rate of the process and other issues. Only when the discounts of NPI exceed $5,000/mt against nickel briquette will the NPI plant switch to produce high-grade nickel matte. In addition, many downstream manufacturers currently do not have the conditions for this production, and the time required to achieve the conditions may be more than half a year. Therefore, the premiums of nickel briquettes against NPI has been repaired recently, and the driving force for manufacturers to produce high-grade nickel matte is weak.

For more information on the nickel and nickel markets, please subscribe to China Nickel Weekly.