How Is the Alloy Sector Performing after Pure Nickel Imports Turned Profitable?

SHANGHAI, Jun 7 – Spot pure nickel imports turned profitable on May 16 and extended the profits until June 1 since the extreme nickel market in March.

Nickel stocks in the Shanghai bonded zone remained largely stagnate from end March to mid-May due to COVID lockdown as well as constant import losses. With the improvement of pandemic situation and emergence of import profits, the bonded zone inventory started to drop last week, with a weekly fall of 700 mt and 500 mt in the past two week. However, the inventory is unlikely to fall significantly in the near term in light of poor downstream demand.

In addition, SHFE front-month and next-month spread has narrowed slightly after the imports became profitable, but is still at historical high, indicating market worries over current pure nickel supply.

Currently speaking, pure nickel supply in China, even around the globe is relatively tight based on the visible inventory. But if the overseas invisible inventory resulted from political conflicts is taken into account, nickel prices would potentially fall.

On the demand side, stainless steel, electroplating and alloy sectors consume about 3,000 mt, 4,000 mt and 8,000 mt of pure nickel respectively in a single month. Nickel plate is more often used in the alloy industry, while nickel briquette was mostly used to produce battery with a monthly consumption of nickel briquette (powder) at 4,000 mt.

The alloy sector is expected to remain the largest downstream sector for pure nickel, accounting for nearly 30% of pure nickel consumption. Alloys are mainly used for hydroelectric generation, nuclear power generation, military industry, precision instruments, etc. Due to the specificity of such use, the requirements for raw materials are extremely high. For military and nuclear power generation, only Jinchuan nickel is used as the raw material. For more civilian applications, such as resistors and containers, NORNICKEL nickel is also an alternative.

However, due to extreme nickel price moves in March and April, some alloy orders have been postponed. And alloy factories purchased on rigid demand after nickel prices fell later.

And the downstream demand has been picking up after pure nickel spot premiums dropped on the successful customs clearance of overseas nickel as well as improving pandemic situation in China.

SMM still believes that short-term nickel prices will maintain upside momentum amid relatively tight supply, recovering demand and shortages of warrants.