What is the reason of "sky-high coefficient" for high-grade nickel matte? [SMM Analysis]

During the week, the high-grade nickel matte coefficient rose to 87-88 (against LME nickel). The overall market was quiet. The main reason for the coefficient increase was the decline in nickel prices to relatively low levels and the rising refining costs of high-grade nickel matte.

On the supply and demand side, high-grade nickel matte, as a raw material for refined nickel and nickel sulphate, has relatively low supply and demand elasticity compared to MHP. The reasons are: first, most refined nickel projects have integrated high-grade nickel matte refining projects; second, the proportion of hydrometallurgy intermediate products used as raw materials in new electro-deposited nickel projects is increasing; third, in nickel sulphate production, MHP has been the main raw material in recent years due to its economic advantages. Currently, there are limited domestic producers capable of using high-grade nickel matte as a raw material.

The current mainstream refining route is laterite nickel ore-NPI-low-grade nickel matte-high-grade nickel matte (RKEF + sulphur converter blowing). In new projects, a new process route has also emerged, namely laterite nickel ore-low-grade nickel matte-high-grade nickel matte (oxygen-enriched side-blown reduction process). According to SMM estimates, the cost difference between the two mainstream processes in the current market is small, both around $13,000, relatively stable. However, the recent decline in the average grade of nickel ore in Indonesia has slightly reduced the yield of high-grade nickel matte, leading to a slight increase in refining costs.

Given the above-mentioned fundamentals and cost characteristics of high-grade nickel matte, combined with the concentrated supply of intermediate products, the overall market transactions of high-grade nickel matte tend to be cyclical, with relatively stable absolute price fluctuations. Therefore, when nickel prices decline and cost support strengthens, sellers tend to raise coefficient quotes to avoid excessive profit compression.

However, there are two disruptive factors in the high-grade nickel matte market: first, its substitutability with MHP; second, its flexible interchangeability with NPI. In 2023-2024, with the continuous construction and ramp-up of new MHP projects, the supply of MHP will continue to increase, and the excess downstream refining capacity (nickel sulphate) of intermediate products will provide enterprises with the flexibility to choose between hydrometallurgy and pyrometallurgy intermediate products based on economic considerations. Meanwhile, NPI prices are rising due to tight supply and increasing ore prices, leading to better profits. Therefore, some production lines are flexibly switching to produce NPI. Considering these factors, high-grade nickel matte often exists as a plan B for buyers and sellers in the market, in a passive position.

Therefore, in the current market: first, overall downstream demand is weak; second, high-grade nickel matte is partially replaced by MHP due to high coefficient pricing; third, producers are driven by profits to switch to NPI production. These factors combined result in weak supply and demand and sluggish transactions.