SMM TOP Talk: Understand Latest Nickel Market from the Perspective of Future Demand

Q: What are the reasons for falling MHP prices?

A: It is related to capacity bottleneck. The nickel sulphate capacity is enough to accommodate the rising MHP supply amid constantly release of new capacities. Therefore, MHP prices dropped amid oversupply.

Q: The prices of NPI and high-grade nickel matte are both falling, which product is more profitable? How far can the prices of NPI fall before we switch to high-grade nickel matte?

A: It is profitable to switch to high-grade nickel matte from March or April until now. In the case of extreme nickel price moves in the first and second quarters of this year, some companies have begun to consider the method of pricing the raw materials based on SMM nickel sulphate prices minus the processing fee. The prices of raw materials were relatively stable using this pricing method. However, the sellers will also consider which one is more profitable, high-grade nickel matte or NPI. When there is a certain price difference, the sellers will consider switching to the other product, or adjust the proportion of the two. Under the current circumstances, the prices of high-grade nickel matte and NPI are relatively close, and companies can also see that the prices will go down further. In this context, they will still consider producing more high-grade nickel matte. If the prices remain on the downward track in the long run, these factories may produce NPI or even stainless steel for sale. If the prices remain stable or rise, while the NPI prices fall, we believe that the high-grade matte nickel will maintain stable production.

Q: What is the progress of the commissioning of raw materials for nickel sulphate?

A: The commissioning of MHP capacity is relatively smooth, including two new projects in Indonesia. The production of high-grade matte nickel slowed down in April and May, but there is still an increase in the past two months. The main reason is that the downstream demand increased, and the overseas application of high-grade matte nickel is also growing, hence the release of high-grade matte nickel capacity is also relatively fast.

Q: Will the new energy sector bring enough added demand of raw materials for nickel sulphate?

A: We believe that there will be a shortage of nickel sulphate in the short term, especially in March, April and even May, when the cost of producing nickel sulphate with nickel briquette was very high, accompanies by extensive production cuts. In our expectation scenario, new energy and precursor sectors will continue to develop, but the production of nickel sulphate will decline. The surplus of raw materials will lead to the shortage of nickel sulphate by comparison. We believe that in the long run and at present, nickel sulphate supply will be in shortage, and the raw material side will be supplemented by nickel briquette.

Nickel briquette encountered a nickel sulphate capacity bottleneck in the second quarter of last year, while the output began to increase with the continuous release of new capacity. In this case, the volume of dissolved nickel briquette reached a relatively high in July and August, and the capacity stood at around 18,000 mt in Ni content. At the beginning of this year, both the proportion and volume of dissolved nickel briquette dropped. On the contrary, the production of MHP rose continuously, and the bottleneck of nickel sulphate capacity surfaced in June and July. Although the production can be heightened to a certain extent by transforming the production lines, we believe that there are still capacity bottlenecks in the long run. In the short term, we believe that nickel sulphate produced with other raw materials will be needed to supplement the overall supply, including high-grade nickel matte There will be an increase in nickel sulphate produced with briquette in the short term. But if the release of other raw materials is smooth in the long run, the briquette-based output will still go down.

We believe that the scrap sector will be relatively stable. Nonetheless, the overall raw material supply will be in excess, and the briquette-based capacity shall be released continuously. Recently, some customers have also reported that the prices of nickel sulphate are inverted against pure nickel. We believe that this is a problem arising from the development of the industry itself. Of course, such extreme situations are relatively rare. However, in the next few years, we believe that the situation that nickel sulphate is in discounts to pure nickel will occur frequently, mainly because of the excess supply of raw materials, resulting in a relatively small amount of dissolved nickel briquette. In this case, the prices of pure nickel represented by nickel briquette may not necessarily remain at a premium over nickel sulphate.

Q: Is stainless steel price still bearish in the near future?

A: Yes, stainless steel prices are relatively bearish based on NPI prices. But in the short term, it is obvious that domestic NPI factories and traders are willing to hold the prices firm, resulting in prices moving rangebound. In terms of profits, steel mills focused on digesting their finished product inventory that was high in June, and after the in-plant and social inventory dropped to a low level, the prices were underpinned. On the other hand, steel mills continue to cut the production. These two factors are bullish for stainless steel prices. But generally speaking, the prices of NPI and ferronickel continue to fall, and we believe that the prices will remain on the downward track in the long run. In addition, ferrochrome prices are also falling. We believe that the prices of stainless steel will remain volatile in the near term, but it will not drop significantly.

Q: How about the price trend of refined nickel and pure nickel?

A: The delivery of deliverable brands will guide the price trend of nickel. After the nickel briquette becomes the deliverable product, we believe that it will bring some benefits to near-month nickel prices. However, the number of nickel briquette stocked in the bonded area is relatively small, and many overseas supplies are in the form of long-term orders. In the short term, even if nickel briquette becomes deliverables, it is difficult to be delivered a large amount. The volume of dissolved nickel briquette used to produce nickel sulphate is expected to rise, which is a bearish factor for briquette as a deliverable. Of course, briquette delivery will increase in the long run, but it is unlikely in the near future.

In terms of pure nickel, the spot goods is still in shortage. We believe that the prices will be relatively high in the near term, and are slightly bearish in the future. There will be a surplus of pure nickel supply around the end of this year. Although the LME inventory is relatively low, we believe that there are still some invisible inventory. Of course, the lack of circulation of these invisible stocks will have no impact on the price. Therefore, in the short term, we maintain the view that nickel prices will remain rangebound without significant drops, while are likely to fall in the long run with expected accumulating pure nickel inventory. 

Q: How about the primary nickel market situation?

A: We have lowered domestic production guidance in the third and fourth quarters, which, however, will not affect the downward trend of NPI pries. It is believed that the volume of imported NPI will continue to increase, especially in in June and July when stainless steel production is reduced. Meanwhile, ferronickel will also flow into China with reduced use overseas. Ferronickel prices were in premiums over NPI in April and May, and turn into discounts at present. But NPI imports will keep rising steadily. In other words, domestic NPI supply will be on the rise.

On the demand side, the overall nickel consumption by overseas stainless steel mills is still increasing, but it is slightly lower than the original growth rate. In other sectors such as battery materials, electroplating and alloys, we still maintain the view of supply surplus of primary nickel, and NPI prices will keep falling. Nickel sulphate prices have not returned to a high level in recent months, and are expected to climb in August. However, nickel sulphate produced with high-grade nickel matte and nickel briquette still bears uncertainties, which requires constant monitoring. In the short term, the prices of nickel sulphate will rise, and the downward speed of pure nickel prices may slow down.