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[Spoiler] China Nickel Industry Chain Annual Report 2021-2025
Nov 23, 2021 10:31CST
Source:SMM
In March 2021, the nickel and stainless steel futures contracts’ hitting the limit down and Tsingshan Group's announcement of the completion of the conversion from high-grade NPI to high-grade nickel matte caused a sensation in the market. There were intensive discussions in the market about the process of converting high-grade NPI to high-grade nickel matte and its cost efficiency. SMM has taken a deep dive into the inducement and future development of the transformation project in terms of the technological feasibility, the cost efficiency of raw materials, the pricing power of the nickel industry chain, as well as the industry strategy.

SHANGHAI, Nov 23 (SMM) -

Tsingshan’s high-grade nickel matte project triggers thinking about new pricing scheme

In March 2021, the nickel and stainless steel futures contracts’ hitting the limit down and Tsingshan Group's announcement of the completion of the conversion from high-grade NPI to high-grade nickel matte caused a sensation in the market. There were intensive discussions in the market about the process of converting high-grade NPI to high-grade nickel matte and its cost efficiency. SMM has taken a deep dive into the inducement and future development of the transformation project in terms of the technological feasibility, the cost efficiency of raw materials, the pricing power of the nickel industry chain, as well as the industry strategy.

• Process

The process of producing high-grade nickel matte from laterite nickel ore is not new. Previously, some smelting enterprises have used this process to produce high-grade nickel matte. However, Sorowako smelter of Vale in Indonesia is currently the only company that still applies this process to produce high-grade nickel matte. The flows of this process consist two alternatives: 1. adding sulphur-containing materials (pyrite, gypsum) to laterite nickel ore - blast furnace blowing at 1500-1600℃ (or electric furnace smelting) - low-grade nickel matte - converter blowing - high-grade nickel matte; 2. laterite nickel ore - RKEF process - high-grade NPI - blowing in the converter after adding sulphur-containing materials - high-grade matte nickel. From the end of 2020 to the beginning of 2021, due to the rapid development of the new energy vehicle (NEV) industry, the supply of intermediate products, which are the raw materials of nickel sulphate, was in short supply; and the buyers were forced to explore new sources of raw materials. Therefore, Tsingshan’s high-grade nickel matte project has once again put this process under spotlight.

• Cost efficiency

SMM data showed that the full cost of high-grade NPI in the PT Indonesia Morowali Industrial Park was about $9,000/mt (Ni content), based on the benchmark prices of Ni1.8% nickel ore in the Indonesian market in February 2021, which stood at $41/wmt FOB. The cost of converting NPI into high-grade nickel matte was at least $1,000/mt (Ni content), and the cost of producing nickel sulphate from high-grade nickel matte was about $4,000/mt (Ni content). The market prices of nickel sulphate stood at 38,000 yuan/mt in March 2021, while the cost of producing nickel sulphate using this new process was 22,600 yuan/mt, making it profitable to shift to the new process of NPI-nickel sulphate at present.

However, the premiums of nickel sulphate over high-grade NPI have narrowed later this year due to the robust demand for NPI from stainless steel, providing no incentive to switch to the new process.

• Pricing power

The costs calculated by SMM are only theoretical. In the actual business negotiations, supply and demand are the key to pricing. As nickel sulphate in the spot market was in short supply earlier, precursor producers had to accept expensive raw materials. However, the use of high-grade nickel matte as a raw material broke the original supply-demand pattern. If the mass production of high-grade nickel matte leads to an oversupply of raw materials, the pricing power will return to precursor producers, who are the users of nickel sulphate. Therefore, the demand for pure nickel from the NEV market may not be as strong as previously expected.

• Industry strategy

SMM believes that the new process represents much greater strategic significance in the long run than the short-term interests brought about by the high premiums of nickel sulphate over NPI. As an international nickel and stainless steel industry giant, Tsingshan Group has invested massively in  resource-rich entities in Indonesia. If the NPI - stainless steel and nickel briquette - new energy industry chains are not integrated, the increase in investment in Indonesia will be subject to the growth rate of stainless steel demand. Therefore, the completion of converting NPI into nickel sulphate will not only alleviate the problem of excess stainless steel raw materials, but also facilitate Tsingshan’s entry into the rapidly growing NEV market. Therefore, when negotiating delivery with downstream buyers, it is still a good deal in the long run even if the profits are lost due to high costs.

Analysis of the impact of "Norwegian nickel plate” as a deliverable brand against SHFE nickel

The Norwegian nickel was previously used as anode products in the electroplating industry, as they meet the national standard of ASTM B39. However, the nickel content in Norwegian nickel is usually more than 99.98%, among the nickel materials with the lowest total impurity content on the market. As the overseas consumption was dragged down by the COVID-19 pandemic in 2020, some imported electroplated nickel plates flowed into the alloy casting industry with lower prices, but the amount was limited, and the substitution still depends on the prices. The prices of Norwegian nickel plate were between $400-500/mt in 2019, but dropped to $200/mt in 2020 and $120/mt in early 2021. The prices of some long-term orders were settled at $80-90/mt. Therefore, the import volume of Norwegian nickel increased rapidly since Q4, 2020. The overseas nickel consumption is gradually recovering, and the prices of some small orders for Norwegian nickel have been raised to $180/mt, which may affect China’s import volume.

Although the Shanghai Futures Exchange issued the announcement on May 21, the domestic market had been expecting the new deliverable products for several months. There was news at the end of 2020 that the manufacturers had already reported relevant materials, and there was also news in mid-April that the brand was about to be delivered. From the perspective of delivery standards and Norwegian nickel inventory in China, however, the new brand will have little impact on SHFE futures contracts in the short term. The deliverables are the nickel plates, while a large amount of Norwegian nickel was imported in barrels in small bits in April. According to SMM survey, there are currently more than 2,200 mt of Norwegian nickel plates stored in the spot warehouses in Shanghai. The imported nickel plates weigh lighter in China than in Norway due to the obvious change in latitude and longitude which will lead to different gravities, which will directly affect the warrants. This problem also appeared in the imports of new Russian refined nickel, and the plants need to reach an agreement with traders. Therefore, warrants are unlikely to increase significantly in the short term. Although the SHFE distant-month contracts have been restored to the contango structure following the announcement of the SHFE, the near-month contracts are still in the backwardation structure.

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